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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.
Macedonia, Former Yugoslav Republic of
Europe and Central Asia
EVN MAKEDONIJA A.D.
Date ESRS disclosed
December 21, 2011
Invested: March 13, 2012
Signed: February 23, 2012
Approved: January 27, 2012
View Summary of Proposed Investment (SPI),
Category & Applicable Standards
Key Issues& Mitigation
Overview of IFC's scope of review
This is a repeat investment for an original project (ESM Macedonia # 26093) that was appraised in 2007 and committed in 2008. The original project was the loan financing of an investment program to upgrade Macedonia’s electricity supply and distribution company, Electropanstvo na Makedonija AD (“ESM”) which was privatized in April 2006 and was acquired by EVN, Austria’s second largest power utility. ESM is now called EVN Macedonia AD (“EVN Macedonia” or the “Company”). After IFC’s investment in the Company, IFC has conducted periodic and ongoing supervision of the Company’s environmental, health and safety and social performance by reviewing Annual Monitoring reports for the year 2008, 2009 and 2010. In addition, IFC conducted a regular environmental supervision visit in March 2011.
The appraisal of this new investment in the Company was conducted by a desk review of the accumulated and updated information about the Company’s environmental and social performance obtained through IFC’s supervision activities as described above.
EVN Macedonia AD (the “Company”) is the Former Yugoslav Republic of Macedonia’s (“FYR Macedonia”) sole electricity supply and distribution company serving more than 640,000 customers and a population of 2 million people. In order to finance the Company’s investment program, in 2008 each of IFC and EBRD provided a long term loan of € 35 million (IFC’s project number #26093). The loans will be repaid in 18 equal installments that started in July 2011 and will be ending in January 2020.
In line with the EU Energy Policy, following the new Energy Law that was enacted in February 2011 and the new secondary regulation, EVN Macedonia and the Macedonian energy market is going through a major reform and liberalization process. Due to the ongoing unbundling of its distribution, supply and generation businesses and the changes to market mechanics the Company is expected to require additional working capital by the beginning of 2012. In order to finance this working capital need and capital expenditures of the Company IFC will provide a long term loan up to € 7 million. EBRD also considers participating in the financing. If EBRD decides to participate, the IFC loan amount will be reduced to € 3.5 million.
The Company’s capital expenditure includes items for high voltage lines, substations, low and medium voltage lines, connections to customers, transformers, meters, telecommunications, and some generation (investment in a new small hydropower project of 1.1MW in 2012). The potential environmental or social impacts of these items are similar to those supported by IFC’s previous investment made in the Company in 2008. The main business of the Company is electricity distribution with about 26,360 km distribution lines. The Company has 11 small hydropower plants (in total 46MW capacity).
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
PS2: Labor and Working Conditions
PS3: Pollution Prevention and Abatement
PS4: Community Health, Safety and Security
PS5: Land Acquisition and Involuntary Resettlement
The remaining Performance Standards are not applicable or minimally relevant as explained below:
PS6: Biodiversity Conservation and Sustainable Natural Resource Management: The Company uses both concrete and wooden poles to support its electricity distribution lines. The Company does not use large numbers of poles each year (less than 700 since takeover by EVN), and the Company’s central procurement department confirms that it does not source wooden poles from protected areas or critical habitats. As part of the previous investment in the Company, a risk was identified that nests of protected bird species (storks) at distribution poles could be destroyed during maintenance activities, and the Company engaged with Macedonian environmental groups to develop more bird friendly structure to be installed at distribution poles. The Company is installing specially designed stork platforms on top of their distribution poles so that the Company’s operation will not destroy stork nests. In total about 100 platforms have been installed at a cost of EUR 120 per platform
PS7: Indigenous Peoples: Macedonia is nearly 100% electrified and the service area and facilities of the Company are already established; the project will further modernize the Company’s electricity supply and distribution systems. Although there are numerous ethnic groups in Macedonia, no Indigenous Peoples as defined in PS7 are expected to be affected by the project.
PS8: Cultural Heritage: Although many of the facilities owned by the Company are historic, no historic heritage is expected to be adversely affected by the project. Any chance finds during system construction and maintenance will be addressed under local regulatory requirements.
Environmental and social categorization and rationale
Because it primarily involves the modernization and upgrading of aging electrical transmission and distribution infrastructure that is already in place, this repeat category B investment will not result in any material change in the management of limited environmental and social risks. New investment activities also include constructing and operating a relatively small-scale hydro power facility in confined (and already disturbed) areas by an existing IFC client who has demonstrated it can effectively operate similar facilities. The current Environmental and Social Risk Rating for the original investment is Satisfactory.
Key environmental and social issues and mitigation
Issues are essentially the same as those identified for the previous investment that are characteristic of an electricity distribution business and include:
- EVN Macedonia’s progress and timetable for implementing company-wide social, environmental and health and safety management systems;
- EVN’s capacity to conduct its capital expenditure program in accordance with IFC’s Performance Standards;
- labor policies, including retrenchment;
- liability for past land and groundwater contamination;
- siting and right-of-way alignment process for new facilities;
- GHG emissions benefits by reducing technical losses;
- management of cultural property; and
- worker health, safety and training programs.
Based on the findings of IFC’s periodic and ongoing environmental and social supervision activities for the previous investment project (ESM Macedonia, #26093), the Company is implementing the actions agreed as part of the previous investment satisfactory to IFC, and their operations are in line with IFC’s Performance Standards.
PS1: Social and Environmental Assessment and Management Systems:
EVN Macedonia is owned by EVN, an Austrian electricity company active in many parts of Europe including Austria, Germany, Croatia, Albania, Bulgaria and Macedonia. EVN has a group-wide environmental policy and publishes annual corporate sustainability reports. EVN Macedonia’s environmental and social activities are implemented in line with the EVN’s group-wide environmental policy.
As part of the previous project (ESM Macedonia #26093) jointly invested by EBRD and IFC, the Company agreed to implement various environmental, health and safety, and social actions in areas including PCB management, hazardous material management, potential land and groundwater contamination, installation of bird friendly platforms, asbestos assessment, provision of Personnel Protection Equipment, EMF exposure assessment, health and safety training, safeguard arrangement for disadvantaged non-paying customers, workers safety arrangement for disconnection / electricity meters installment activities. Most of them were completed during the years of 2008 to 2011, with some remaining actions related being managed by the newly established Workers Safety and Environmental Protection Department. The remaining actions are related to pollution prevention and abatement and their updated status are summarized under PS3 of this document.
The Workers Safety and Environmental Protection Department consists of (i) Environmental Unit and (ii) Safety Unit, both with capable staff. In line with the EVN’s overall group sustainability and environmental policy, EVN Macedonia’s Workers Safety and Environmental Protection Department is implementing to strengthen the Company’s environmental management system (procedures and manuals maintenance, objectives setting, budget, program implementation, trainings, monitoring and reporting). The Company is also reviewing an option to pursue ISO 14001 certification.
The Workers Safety and Environmental Protection Department manages the monitoring activities of environmental, health and safety (EHS) performance of the Company (e.g. site contamination, hazardous and non-hazardous waste generation and disposal, including PCB contaminated oil and equipment, electromagnetic field, noise, energy efficiency, injuries and fatalities, provision of Personal Protective Equipment). The Department annually reports implementation of the major EHS activities and key performance to the Company’s management as part of annual budget determination. The Company regularly reports key EHS performance and activities to EVN.
A new small hydropower plant (about 1.1MW) is planned to be developed. In accordance with IFC’s Performance Standards, the Company conducts an environmental assessment of the project and ensures that necessary mitigation measures are implemented. The Company will follow IFC’s Performance Standards in developing new generation capacity.
PS2: Labor and Working Conditions:
The pre-privatized entity ESM was one of the largest employers in Macedonia with over 3,500 employees in 2006. As part of the Company’s activities to improve quality of service and efficiency, the number of employees was reduced to 2,400 as of December 2010. Almost all the employees (99%) belong to a labor union called “Trade Union of EVN Macedonia”. The Company’s management has been maintaining a regular dialogue with the labor union and the employees about implementation of efficiency improvements. In order to achieve efficiency improvement, the Company introduced a voluntary leave program whereby employees can choose to leave EVN Macedonia in exchange for remuneration package. Through this program, the Company reduced the number of employees as planned without any major disputes. At the joint monitoring visit to the Company by IFC and EBRD in March 2011, the Company indicated that there are no major pending labor issues.
Since takeover in 2006, EVN has been building upon previous systems within ESM to upgrade the Company’s human resources and occupational health and safety policies and procedures with respect to the requirements of EU regulations. Toward this goal, EVN Macedonia has created a centralized Human Relations Department with a dedicated HR manager. In line with the agreed actions as part of IFC/EBRD’s previous investment, the health and safety review of operations was conducted, and the health and safety training programs for staff was strengthened. The Company’s Safety Unit is charge of implementing the overall health and safety awareness and training programs.
The Company does not make use of child labor or forced labor and does not discriminate on the basis of personal characteristics.
The Company owns 11 small hydropower plants (with total capacity of 46MW) from which 7 are operated by Makhidro –a third party operation and maintenance company. As an outcome of the previous investment, a need to provide life saving equipment at hydropower plants was identified, and this was completed.
The Company has an established health and safety program that is managed by the Safety Unit of the Workers Safety and Environmental Protection Department. The program covers health and safety training for workers, incident reporting and investigation, hazard assessment and controls, communications to workers sharing knowledge and lessons learned, emergency preparedness and response, and inspection and audit. Under the program, Personal Protective Equipment (PPE) is provided to relevant workers including safety shoes, water jackets, safety goggles, special protective uniforms for high voltage works. Workers are trained to work in the relevant hazards, safety procedures and emergency response. Contractors are also required to follow the similar health and safety program including relevant necessary trainings and use of PPE. Each relevant department of the Company, depending on the type of work and hazards, makes daily, weekly, monthly summary of safety performance and training programs. During the last three years from 2008 to 2010, the Company had, in 2010, one fatality of a contractor who was conducting at 110 kV line. The Company invested the cause of the accident (negligence of safety procedures) and took an action to strengthen enforcement.
PS3: Pollution Prevention and Abetment
Various actions were agreed with the Company as part of the previous investment. Implementation status of the agreed actions are satisfactory to IFC as of October 2011. Implementation status of the key actions are summarized as below:
PCB Inventory and Analysis: PCBs contaminated equipment inventory was started in 2007 and completed in 2010. About 7,000 transformers and 200 oil containers were inventoried. Out of these, so far, 2,500 samples were already tested at a laboratory in Macedonia, and about 500 samples were sent to Germany for further analysis. About 5 to 6 percent of the total samples tested were positive for contamination of PCBs. As of March 2011, there are still about 4,700 samples to be tested. The Company plans to complete this by December 2013. This task is being implemented in close coordination with the Ministry of Environment. According to the Macedonian Law, transformers identified to be contaminated with PCBs can continue to be in use until 2025. Transformers which are not in use will be stored at the central storage area of EVN Macedonia. The central storage area is a UNIDO/GEF/EVN joint project and it will be ready by December 2011. In addition, the low voltage PCB capacitors were already taken out from Macedonia to Switzerland for disposal. Medium voltage PCB capacitors (about 19,000 kg) are still in Macedonia stored at 10 different places. A company which will install new capacitors will take old capacitors and dispose properly.
Warehouse Integration: The Company started a project to close 19 existing warehouses (which store not only new parts and equipment, but also old equipment which may contain hazardous materials such as PCBs) and integrate into one central warehouse. In 2011, this central warehouse is planned to be completed. The environmental, health and safety risks of the current operation at existing old warehouses are expected to be significantly reduced once the integration is completed.
Treated Wooden Poles: Continuous replacement and disposal of the old treated poles is being implemented by a company supplying wooden poles to EVN Macedonia. EVN Macedonia is monitoring that the company supplying wooden poles is disposing the old treated poles in an environmentally proper way.
Investigation of Potentially Contaminated Land: Once a year, soil and groundwater are tested for possible contamination at a site where fuel oils were stored in the past. So far no significant levels detected. The monitoring activities will continue.
Greenhouse Gas Emissions: In 2009, the Company purchased 6,296 GWh and sold 5,282 GWh of electricity from the grid (with technical and commercial loss of electricity 1,014 GWh, or 16.1%). Using the Macedonia’s country average CO2 emissions performance per unit of electricity generated (0.74 kgCO2/kWh), this loss is equivalent to about 750,000 ton CO2. The Company is also estimated to have emitted about 4,144 ton CO2 due to it consumption of 1.41 GWh of heat for central heating, 40,179 litres of oil for heating, 461,266 litres of gasoline and 729,110 litres of diesel for maintenance vehicles. The technical and commercial loss level of 16.1% in 2009 was better than the level in 2006 (24.2%). The Company will continue to monitor the improvement of commercial and technical loss levels and equivalent CO2 emissions.
PS 4: Community Health, Safety and Security
EVN Macedonia experiences commercial losses through tampering and meter bypassing at individual residences and businesses, and less frequently through attempts at illegal connections to the overhead lines in its system. Tracking of information on injuries and accidents resulting from theft and other activities is being improved. As part of this repeat investment, more systematic tracking and reporting will be monitored.
Nearly all parts of the electricity supply and distribution system are in seismic risk areas, including the small scale hydro dams in the more mountainous areas of the country. Inundation from dam overflow and/or dam failure is an important safety and environmental risk. The issue has clearly been high on the design agenda in the past and the overall system robustness has been modeled in a range of scenarios. Dam inspections are routinely undertaken by independent assessors. The Company is improving its community engagement activities so that such studies can be accessible to potentially affected communities.
The Company monitors fatalities and injuries to the public relating to electrocutions by the Company’s network. The Company’s records show that there was one fatality of a person who was attempting to steal materials in a substation owned by the Company. The Company continues to monitor such fatalities and injuries to the public and effectiveness of preventive measures being taken by the Company.
PS5: Land Acquisition and Involuntary Resettlement
EVN Macedonia’s service area is effectively 100% electrified, and land requirements for the planned investment program will be small. As a regulated utility, the Company will operate within procedures established under Macedonian regulations for any land acquisition.
The Company has operational procedures for controlling encroachments onto its system, and the Company inspects its rights-of-way and other facilities (such as substations) regularly and has operation teams with responsibility to maintain the safety zones. The Company does not have significant problems with the existing or long standing encroachments. When new attempts at encroachment are encountered, the Company works with encroachers to remove or discontinue prohibited activities. In urban areas, the Company introduces or increases the scale of physical separation barriers to prevent further encroachment.
Client's community engagement
The Company has been conducting a proactive program of customers and staff dialogue, including both internal and external publicity campaigns to present ENV Macedonia’s image in a customer oriented light. Key topics include the Company’s meter installation / bill payment enforcement / disconnection programs, both in relation to issue about disconnections and in the changes needed to allow easier inspection and reading of meters.
Because the facilities the Company operates have limited environmental or social impacts on communities, the Company’s community engagement activities have been focusing on their customers. Since IFC’s investment in 2008, EVN Macedonia opened a new Customer Relations Center, which is available 24 hours a day, 365 days a year.
Customers can contact the Customer Relations Center about their questions on electricity bills, information about the Company’s service, advice on electricity saving opportunities, grievance mechanism, and any other concerns. Customers are also encouraged to inform the Customer Relations Center whether they were satisfied with the performance of EVN’s employees, or any other complaints so that the Company can continue to improve their quality of service to customers. The Company is training their operators of the Customer Relations Center so that they provide professional, quick and satisfactory responses.
Customer Relations Center can be accessed at:
Service Hotline: 0890 12345
Emergency Hotline: 0890 888888
EVN Macedonia AD
Str. 11 Octomvri 9, 100 Skopje, Macedonia
Local access of project documentation
For more information please contact:
EVN Macedonia AD, Skopje
Str. 11, Oktomvri 9
Skopje 1000, FYR Macedonia
Phone: +389 ( 0 ) 2 3205 000 41346
Fax: +389 (0 ) 2 312 0023
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