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Environmental & Social Review Summary
This Environmental and Social Review Summary is prepared and distributed in advance of the IFC Board of Directors’ consideration of the proposed transaction. Its purpose is to enhance the transparency of IFC’s activities, and this document should not be construed as presuming the outcome of the Board of Director’s decision. Board dates are estimates only.
Any documentation which is attached to this Environmental and Social Review Summary has been prepared by the project sponsor and authorization has been given for public release. IFC has reviewed this documentation and considers that it is of adequate quality to be released to the public but does not endorse the content.
Europe and Central Asia
BORETS INTERNATIONAL LTD
Date ESRS disclosed
November 13, 2009
Invested: March 18, 2010
Signed: December 22, 2009
Approved: December 21, 2009
View Summary of Proposed Investment (SPI),
Category & Applicable Standards
Key Issues& Mitigation
Overview of IFC's scope of review
Environmental and social (E&S) appraisal of Borets’ operations in Russia included visits of IFC’s environmental specialists to manufacturing plants in Tomilino (“Kontekko”), Kurgan (“Kurgan Cable Plant”) and Lysva (“Lysvaneftemash”) as well as interviews of corporate environmental, health and safety (EHS) and HR experts at Borets’ Moscow HQ in October and November 2009. During the visits and phone interviews IFC’s experts have reviewed management procedures, accident records, relevant emission and discharge data, and the actual implementation of occupational health and safety standards.
IFC’s review also used the conclusions of environmental and social due diligence carried out by internationally recognized consultant Environmental Resources Management Limited (ERM), UK, during July and August 2009. ERM undertook an environmental audit of Borets facilities in 2006, when four manufacturing (Lebedyan, Lysva, Kurgan and Kineshma) and eight service sites (Centroforce, Borets Service – Nefteyugansk (6 sites), and Borets-Muravlenko) were assessed. These sites were subject to update interviews in 2009. In addition, the manufacturing site in Krasnodar and service sites in Buzuluk acquired by Borets between 2006 and 2009 were visited and assessed as part of this assignment.
IFC’s review also included BIL’s international operations acquired from Weatherford in 2008. For this purpose, an IFC environmental specialist met with the corporate Environmental Director of Weatherford International on October 29th, at Weatherford’s HQ in Houston, USA.
During the appraisal IFC’s staff reviewed the following documentation:
Weatherford’s Enterprise Excellence Program (EPP) – summary of the Company’s integrated management system.
Weatherford’s Performance Tracking System (WPTS) - summary
Weatherford’s Environment Manual
Weatherford’s Safety Manual
Borets International Limited (“BIL”, or ‘the Group”) and its subsidiaries (“Borets” or the “Company”) are the leading Russian producers of electrical submersible pumps (“ESPs”). ESPs are an important part of the oil production process and are installed in oil wells that do not have sufficient reservoir pressure and need supplemental energy in raising oil from the reservoir to the surface. In addition, Borets provides extensive services from ESP repair and maintenance contracts to logistics, inventory and field monitoring and supervision services. Borets also makes other products used in the oilfield services sector such as submersible centrifugal pumps, submersible motors, cables, and surface control equipment. The Group has 10 manufacturing locations, 6 in Russia, and one each in Western Europe, China, the U.S. and Canada. The Group also has 18 service centers, 7 in Russia. It has 8644 employees worldwide, including 8061 in Russia.
BIL approached IFC, EBRD and DEG to finance its $230 million investment needs which include: (i) refinancing its outstanding long-term debt; (ii) funding mainly the working capital and capital expenditure requirements of the Group’s international expansion (largely allocated to Mexico, Brazil, Indonesia, Africa and China but such allocation may change depending on the timing and results of the bidding processes for service and equipment sales contracts in most cases); and (iii) modernization and working capital requirements of its operations in Russia (the “Project”).
Identified applicable performance standards
While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:
PS1: Social and Environmental Assessment and Management Systems with respect to corporate and plant level management of environmental, health and safety performance; compliance with national and local requirements.
PS2: Labor and Working Conditions with regard to fair, safe and healthy working conditions.
PS3: Pollution Prevention and Abatement with regard to emissions to air, wastewater management, and solid waste management.
PS4: Community Health, Safety and Security in respect of the ambient air quality.
The following Performance Standards were screened for but not found relevant for the Project as described below:
PS5: Land Acquisition and Involuntary Resettlement as all current projects are carried out within the existing plant areas and no acquisition of additional land is anticipated.
PS6: Biodiversity Conservation and Sustainable Natural Resource Management as the Company has no direct involvement in natural resource operations.
PS7: Indigenous People as all current projects are carried out in the developed urban areas and there are no indigenous people relying on traditional livelihoods around Borets project sites.
PS8: Cultural Heritage as all land used by Borets has been converted to industrial uses for decades.
IFC and Borets have identified some environmental, health and safety issues, related to the existing operations, which will be addressed as part of the Project implementation. These issues are covered in the attached Environmental and Social Action Plan (ESAP).
Environmental and social categorization and rationale
None of factories owned and operated by BIL is scheduled for major retrenchments, closure, or expansions outside existing site boundaries.
Based on the planned use of internationally recognized design and equipment suppliers, and the upgrades taking place within the existing facilities, this Project is a Category B project according to IFC’s environmental and social review procedure, because potential adverse social and environmental impacts are limited and readily mitigable, as described in the following sections.
Key environmental and social issues and mitigation
PS1: Social and Environmental Assessment and Management Systems:ISO 14001 certification has been obtained at two of Borets’ service facilities in Russia. However, most individual facilities currently rely on the legally required management systems for environmental, health and safety performance (EHS). These systems envisage designated in-house personnel responsible for management of environmental and social issues, including routine monitoring activities and periodic external reporting to relevant government authorities on key environmental and safety control factors. Training is provided to key EHS staff on Russian regulatory requirements. The management programs at individual plants include Action Plans to ensure compliance with local regulatory requirements and secure permits.
While the existing procedures meet the requirements of the Russian legislation, they may be improved to provide a good platform for a system that tracks performance of the range of issues defined in the IFC’s Performance Standards, or to identify opportunities for better EHS practices and performance. Therefore, the Company and IFC have agreed in the E&S Action Plan (ESAP) that corporate EHS Management System based on ISO 14001:2004 and OHSAS 18001 standards should be developed and implemented at the level of Borets’ Head Office with the aim to create an integrated system for the Group as a whole and achieve these certifications by 2011. These systems will be based upon the existing Quality Management System certified with ISO 9001. Corporate EHS procedures will be implemented at individual facilities of Borets, but the decision whether to certify individual facilities will be taken by the Company later based on the commercial need.
As the first step, a corporate Director with responsibility and authority for all EHS matters at the Company has been appointed by Borets recently.
BIL’s international subsidiaries were recently acquired from Weatherford, worldwide leader in oilfield equipment production and maintenance with 45,000 people plus a large number of qualified sub-contractors.
Weatherford has a robust integrated management system, the Enterprise Excellence Program (EEP) that comprises quality, environment and occupational health and safety procedures in line with ISO 9001, ISO 14001 and OHSAS 18001 standards, as well as a policy for the rigorous application of a labor standard that is consistent with good international practices and maintains or exceeds national legislated standards. Weatherford’s Performance Tracking System (WPTS) consists of a regularly updated database in the Company’s intranet that tracks OHS statistics (accident incidence/severity) that are benchmarked by sector and by region, and environment incident tracking. On the basis of WPTS the Company’s manufacturing and servicing facilities worldwide are performing in accordance with the EEP and they follow a policy of continuing improvement consistent with IFC requirements.
Weatherford has confirmed that their Global Environment Manual and Global Safety Manual were formally adopted and are being applied to BIL’s ESP operations acquired from Weatherford in 2008, and that Weatherford’s EPP system is generally, although not formally, followed.
Going forward, BIL shall benefit from the strategic partnership with Weatherford by incorporating the applicable elements of Weatherford’s systems into its corporate EHS management system so that proved good practices are extended to their operations in Russia.
PS2: Labor and Working Conditions:BIL employs 8644 people. The vast majority of the workforce is located in Russia – 8061 people.
Russia fully endorses the ILO core labor standards and they are incorporated in the national labor laws. Hereby the core labor standards, as defined in Performance Standard 2 are guaranteed for employees at companies like Borets, which strictly follow the legal requirements. In addition to the requirements of the national legislation, terms of employment and dismissal, working conditions, wages and benefits for Company’s employees are addressed in internal labor regulations and collective agreements. Collective agreements are mainly in force at Borets service facilities, where the majority of employees are organized in industrial trade unions.
Grievance procedure for employees typically includes “open door” policies from managers and suggestion/complaints boxes at some of Borets’ facilities. However, such mechanisms could be improved. The Company and IFC have agreed in the ESAP that Borets will develop a unified corporate grievance procedure for workers to express their opinions on their treatment at work, either collectively or individually during 2010. The mechanism will involve an appropriate level of management and address concerns promptly, using an understandable and transparent process that provides feedback to those concerned, with guarantee of no retribution.
At international operations BIL applies the corporate Weatherford’s Human resources policy, which is consistent with the requirements of IFC’s PS2. The policy recognizes workers’ freedom of association and provides for non-discrimination and equal opportunity. In the US and all their sites abroad, Weatherford strictly enforces the minimum hiring threshold of 18 years and follows all legislative requirements relating to hiring and retrenchment. Weatherford maintains or exceeds legislated standards of workers’ salary and benefits.
The Russian legislation stipulates that an employer should carry out hazard identification at workplaces and implement necessary controls with further obligatory attestation of workplaces to verify their compliance with the requirements to working conditions. Most individual plants have completed the analysis of workplaces’ safety and elaborate specific Action Plans to eliminate the non-compliances and achieve the obligatory attestation. The major non-compliances include outdated exhaust ventilation systems at Kineshma and Lysva plants, which require upgrades to achieve acceptable level of workplace air quality. Blending, molding and sintering shops at Kineshma plant should be equipped with effective dust extraction, while paint and lacquer impregnation shops in Lysva need effective VOC exhaust systems.
While Borets has no production of asbestos components, significant amounts of asbestos were used in preparation of molds at foundry operation of Lemaz. Although the use of asbestos is legal in Russia, Borets took the decision to replace asbestos with alternative materials. These materials are currently being tested at Lemaz, with the aim to phase asbestos out by 2011.
Some life and fire safety deficiencies were observed during the site visit to Lysva and Lemaz. To minimize this occupational risk for workers, fire hardware & procedural review should be undertaken at all manufacturing sites followed by the implementation of the necessary improvements as agreed in the ESAP.
The safety tracking record at Borets’s factories is well established and the data for the years 2007-9 have been reviewed for all visited facilities. The safety record data at manufacturing facilities shows steady performance with Lost-Day-Accident/Million-Man-Hours (LDA/MMH) ranging from 0 to 6.36. While the upper level is relatively high, the corporate average below 3.0 LDA/MMH represents creditable performance. The Company reported that no occupational incidents occurred at any service facilities during the period 2007-2009.
Borets-Weatherford plants and service operations work under procedures consistent with OHSAS 18001 standard. The Company emphasizes safety throughout its operations and the accident rate has fallen gradually in the past five years. The current frequency and severity indexes compares favorably with the industry’s world rate, as reported by the Company’s performance tracking system. The Company provides safety induction and ongoing training for all workers and visitors, and appropriate personal protective equipment is issued and used throughout.
PS3: Pollution Prevention and Abatement:Significant air emissions at the Borets’ facilities are mainly associated with foundry operations; power metallurgy; metal shaping, thermal treatment, surface preparation; metal and plastic coating, and painting operations. Direct measurements of emissions from point sources are performed irregularly; the compliance information for Borets’ operations is based primarily on calculated emission levels and ambient air quality at the edge of the buffer zone. Ambient air quality is regularly monitored by sanitary authorities and, reportedly, national limits are not exceeded. Although this primary compliance requirement is met at Borets’ plants, the Company and IFC agreed in the ESAP that regular monitoring of air emission levels at point sources of significant process emissions will be commenced and remedial measures will be identified for those which are not meeting IFC’s guideline values.
None of the Borets’ production facilities are water usage intensive, except for the foundry operations, though these use closed loop cooling systems to reduce the water usage. Water is therefore in general based on the public water supply systems in the city where the facilities are located. A few facilities have additional private water wells, or river water intake as in Lemaz. Typically, wastewater from electroplating together with other process wastewater is treated at internal wastewater treatment plants and is recycled as process water. Sanitary water is delivered to the municipal waste water treatment systems, sometimes together with treated storm water and the limited industrial waste water from the production. Borets carries out frequent analysis of its waste water before it is delivered to the municipal treatment facilities to ensure it is within the norms these facilities can accept for treatment. Discharge limits for treated waste water in Russia is significantly more stringent than the IFC guidelines.
Most industrial waste streams are recycled. None recyclable solid waste streams are disposed at licensed landfills. Hazardous waste streams (e.g. used mercury lamps) are handled by licensed contractors.
The investment will enable Borets to produce submersible pumps with high energy efficiency permanent magnet motors (PMMs) which are more efficient than currently available alternatives. The Company currently produces a small number of PMMs, and will be expanding production. Future annual output of PMMs is anticipated to deliver annual greenhouse gas savings of some 580,000 tonnes CO2 equivalent for pump users.
Greenhouse gas emissions from Borets’ own facilities in 2008 were estimated at 55,000 tonnes CO2 equivalent.
A short description of the visited manufacturing and servicing facilities is given below:
Lemaz plant : The factory, employing 1,736 people, produces pump sections, gas separators and pump intakes. The Site is located 5 km north-east of the city of Lebedyan, Lipetskaya oblast, within a mixed commercial, retail and industrial area. The main processes are induction furnace-based iron casting, and the machining of the casted components.
Lysvaneftemash plant (LNM): The Site is located in the town of Lysva in 200 km from the city of Perm, in the Ural region of the Russian Federation. The factory employs 932 people. The Lysva plant is the location for the motor manufacturing, seal manufacturing and the manufacturing of the permanent magnet motor. The main processes are machining, stamping of the rotor sheets, winding and coating of the stator and the assembly of the rotor and stator.
Kurgan Cable Plant (KCP): This factory, employing 161 people, is producing the rubber insulated cable of various sizes for submersible electric motors. The plant is located within an industrial site of ‘KurganKhimMash’, from which KCP is leasing a production building. Main operations include: tinning of copper wires; curing/vulcanization of EPDM (ethylene-propylene-diene monomer) insulation film; lead melting; lead sheathing of insulated conductors; nylon braiding; winding of insulated cable cores and cable; cable shielding with a galvanized steel strip.
Kineshma Plant (“Technology”): This factory, employing 337 people, is specialized in the production of stages for submersible centrifugal pumps, trust bearings fro submersible motors and manufacturing of metal powder formulations. From an environmental and occupational health views the critical processes are blending, pressure molding and sintering of the pressed metal components.
Tomilino Plant (“Kontekko”): The plant in Tomilino, employing 32 people, is producing wiring with fluoroplastic insulation. The project is located within the industry zone, 6 km south-east of the city of Moscow.
Krasnodar Plant: The Plant in Krasnodar is a manufacturing plant for Compressors and Gas-Boosters and a service center. Manufacturing division employs 892 people and produces compressors, compressor stations and gas booster units. The plant has a foundry operation. The remaining operations consist of forging, machining and assembly operations followed by painting.
Servicing division employs 40 people. Scope of services include: repair of all units of an ESP systems, as well as testing, installation, putting of ESP into operation and field maintenance.
BIL has other oilfield servicing facilities in Russia as follows:
Nizhnevartovsk (Centro Force Service Center): Nizhnevartovsk, a joint venture, services many of the wells in the Samotlor Oilfield, Western Siberia. This is the biggest Oil Field in Russia with 4500 wells. To service the wells the Company has 140 vehicles which are owned by Centro Force. The office in Nishnevartovsk has 50 heads mainly with administrative jobs and a total headcount of around 1000 people. Additionally to the main workshop there are 4 workshops distributed in the oilfield. The basic process flow for the pumps to service include cleaning of the complete ESP System (Pump&Motor), disassemble the pump and the motor; audit and replace components; assemble and testing.
Borets has five other, wholly owned, service companies which collectively employ around 2300 persons in servicing some 9000 wells.
PS4: Community Health, Safety and Security:In compliance with the national regulatory requirements Borets has established buffer zones around its plants to ensure the standard ambient air quality at its edge. Russian regulations prohibit permanent and/or long-term residence of people within the buffer zones to avoid risks to their health due to a potentially substandard ambient air quality. Reportedly, there are no permanent or seasonal residents within the existing buffer zones of Borets plants except for one recently acquired location.
Client's community engagement
Borets’ individual factories were built decades ago and most of them are among the largest employers in the cities. As such, the factories used to own and operate socially oriented infrastructure. Some factories as Lemaz operate in-house power plants, which are supplying heat and hot water to the city residents. Current community engagement typically include sponsoring of the selected city events and organizing various social activities for employees and their families, which constitute a large share of the cities’ population, e.g. sporting competitions, subsidized holidays of schoolchildren in summer camps, help to war veterans’ organizations, excursions to the plant, close cooperation with local educational institutions.
Going forward, Borets as part of its corporate EHS management system to be implemented in 2011 will establish methods for communicating environmental and social aspects of current operations and maintain procedures for receiving, documenting and responding to concerns from any external interested parties relating to the Project.
Local access of project documentation
The Project does not involve any new construction and, therefore, no environmental impact assessment was carried out for this Project. EHS Summary of Borets operations and Corporate Action Plan based on the ESAP agreed between Borets and IFC will be published in Russian on the corporate web-site of Borets www.boretscompany.ru. Hard copies of these documents will be made available to the local communities and employees at the entrance information desks of all Borets’ manufacturing facilities in Russia starting from November 20, 2009. To inform the local people on the availability of environmental and social documentation, Borets will post the notices in municipal or community centers.
For inquires about the Project please contact:
Environmental, Health and Safety Director
5/1 Moldavskaya St.
IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring them to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities.
In addition, Affected Communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC. The CAO is mandated to address complaints from people affected by IFC-supported business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of IFC.
Independent of IFC management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of IFC’s environmental and social performance through its compliance arm.
Complaints may relate to any aspect of IFC-supported business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of an IFC-financed business activity. Complaints can be submitted to the CAO in writing to the address below:
Compliance Advisor Ombudsman
International Finance Corporation
2121 Pennsylvania Avenue NW
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400
The CAO receives and addresses complaints in accordance with the criteria set out in its Operational Guidelines which are available at: www.cao-ombudsman.org
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