IPI

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public 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 decision. Board dates are estimates only.

Project number	25136
Company name	Interstate Paper Industries SAE
Country	Egypt
Sector	Pulp & Paper
Environmental category	B
Department	Global Manufacturing & Services
Status	Active

Date SPI disclosed	December 20, 2006
Projected board date	January 22, 2007
Previous Events	Invested: June 28, 2007 Signed: March 26, 2007 Approved: March 23, 2007

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project involves the construction of a greenfield tissue mill in Egypt by a newly formed company, Interstate Paper Industries SAE (IPI or the company). IPI will be 99% owned by the Frem Industrial Group SAL (Holding) (FIG or the sponsor), 0.5% by INDEVCO SAL, and 0.5% by Unipak Nile Ltd., which are part of the INDEVCO Group of Lebanon (the Group).

The group owns and operates a profitable 30,000 tons per annum (tpa) tissue mill in Lebanon, selling to clients in the Middle East and the UK. This tissue mill, despite a recent increase in capacity from 18,000 tpa to 30,000 tpa, is finding it difficult to keep up with demand, hence the Group’s decision to construct another tissue mill in Egypt, where electricity, energy and labor costs are lower. The project will be manufacturing jumbo tissue rolls and mainly exporting to converters outside Egypt.

Anticipated development impact of the project

The project will supply various grades of jumbo rolls to Middle East, Europe and African markets for the conversion into tissue paper products, which will further promote Egyptian exports. Its exports to Europe will benefit from low backhaul rates. The project is also expected to use world class production technology to process domestic recycled waste paper and imported virgin pulp. This will increase incentives of its suppliers to collect and recycle more waste paper. The benefits of recycling include reduction of pollution, salvage forest trees, energy and water savings. The project is expected to create 170 direct jobs at the mill and an additional 1,000 jobs indirectly in local wastepaper collection in Egypt, where the unemployment rate is approximately 10% in 2005.

The sponsors of the project have been active in the communities in which they operate and IPI will adopt a similar approach. The bulk of INDEVCO Group’s community engagement is handled by the INDEVCO Foundation (recently renamed the Georges N. Frem Foundation after the recently deceased founder of INDEVCO Group). The Georges N. Frem Foundation is active in the education, civil society, social welfare, community and economic development areas. Furthermore, the INDEVCO Group has a strong record in Egypt in Unipak Nile, with a focus on quality control, ISO and other certifications which have a continuing positive demonstration effect in raising the quality of local manufacturing companies. The project will reinforce this effort and provide an ongoing model for business success.

IFC's expected development contribution

IFC will be supporting an existing client with their south-to-south investment, an important strategic objective for IFC. IFC will be providing long-term funding to the project currently not available in Egypt. IFC’s involvement will further strengthen the Group’s adoption and implementation of environmental and social best practices.

Environmental and social issues - Category B

Based on the site visit to Sadat City and to Unipak Nile, discussions with the client and with the civil administration in Sadat City (the Mayor), the project will have limited potential adverse environmental and social impacts. Also any impacts will be few in number, site-specific, reversible and easily addressed through agreed mitigation measures. As a result of the above this is a Category B project.

The client has presented plans to address any impacts to ensure that the proposed project will upon implementation of the specific agreed measures, comply with the environmental and social requirements of Egypt as well as the IFC environment and social policies and the environmental, health and safety guidelines. The information about how these potential impacts will be addressed by the project is summarized in the paragraphs that follow.

A site for this project has been selected and purchased and the Mayor of Sadat City has approved the site, and IPI has begun the process of obtaining all the necessary permits. Applications for all the relevant Egyptian permits will be sent to IFC for review and comment to ensure that the project complies with IFC’s requirements. Any information deficiencies in terms of compliance with IFC’s requirements will be addressed by the client as will any potential noncompliance issues (in an Action Plan). The management of IPI as well as their parent, INDEVCO Group, is committed to comply fully with all the Egyptian and IFC requirements. At present an environmental and social management program is not required but this may change based on the results on the permit application review process. Certainly IPI will be required to prepare policies and operational procedures on environment, labor, and occupational health and safety (this will be part of their agreed Action Plan). IPI will achieve ISO 9000 (Quality) certification and the benefits of ISO 14001 (Environmental Management) and OHSAS 18001 (Occupational Health and Safety) certifications were discussed with the client (as was the 6 Sigma quality program), although IFC does not require these certifications.

IPI will employ about 170 staff and will use the Human Resource (HR) policies and procedures developed and implemented by INDEVCO Group for use in all the Group companies. INDEVCO Group has about 4,000 employees in the Middle East. INDEVCO Group has a corporate HR Department that provides leadership, guidance and advice to the Group companies on HR issues. Also IPI can use the knowledge and experience in Egypt of Unipak Nile (with 400 employees). Consistent with INDEVCO Group’s approach to HR, IPI will have its own HR Department but it will have to operate according to the Group’s HR policies and procedures. All new IPI employees will receive copies of the Group’s HR policies and procedures and, consistent with Egyptian law, details in writing of their employment contract. INDEVCO Group has an open door policy on grievance issues with all employees having the right to meet the President of the company or the General Manager. All employees are aware of this right and are encouraged to use it if necessary. INDEVCO Group views their employees at all levels as their primary resource and takes care to ensure they are well paid, properly trained, and have opportunities for advancement. Currently IPI as a new company does not yet have an Occupational Health and Safety Management system (OHSMS). With the assistance of INDEVCO Group and Unipak Nile, IPI will develop and implement an OHSMS acceptable to IFC.

IPI will buy its raw water from the Sadat City municipal system. Pretreated wastewater will be discharged to the municipal sewer from the plant and then subject to additional treatment (i.e. sedimentation in this case) prior to reuse as non-food crop irrigation water – thus all the wastewater from the new plant will be reused. Electricity to the plant will be supplied from the grid and natural gas will also be available for the boilers. Waste paper of the proper quality will be recycled in the process. Other solid waste will whenever possible be sold to a licensed contractor for recycling (e.g. paper, cardboard, plastic, glass and metal). The remaining solid waste will be collected regularly by a licensed contractor for disposal in Sadat City’s landfill. It is anticipated that the plant will meet both IFC and Egyptian environmental requirements. IFC will review the Egyptian permit applications to ensure compliance with IFC and Egyptian requirements. IPI plans to build and operate a very efficient mill based on their international experiences. Plans are as follows:

- Water: to limit water use to about 10 to 15 m3 per ton of tissue paper – the international best practice is about 25 m3 per ton of tissue paper;
- Energy: to use energy efficiently and limit it’s use to about 1,000 to 1,200 kwh per ton with international best practice at about 1,500 to 1,800 kwh per ton of tissue;
- Operational Characteristics: IPI plans to manufacture multiple products using varied inputs of raw materials. This will require considerable flexibility in the tissue making process; and
- Quality: IPI intends to make high quality tissue products suitable for the European market at a reasonable cost.

There is a large and sophisticated waste paper recycling industry in Egypt particularly in and around Cairo. There is an excellent supply of the correct quality of waste paper to meet IPI’s needs for tissue production (50,000 tpa). Currently Egypt collects about 100,000 tpa of waste paper and IPI expects to buy about 30,000 tpa of waste paper from the market.

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