CTA

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.

Project number	26466
Country	Chile
Sector	Utilities
Department	Infrastructure
Company name	Central Termoelectrica Andino
Environmental category	B
Status	Pending Signing

Date ESRS disclosed	February 1, 2008

Previous Events	Approved: March 13, 2008

View Summary of Proposed Investment (SPI), click here

Overview

Category & Applicable Standards

Key Issues & Mitigation

Community Engagements

Client's Documentation

Overview of IFC's scope of review

IFC visited the proposed project site and interviewed environmental specialists at Edelnor facilities in Mejillones to evaluate Edelnor’s management systems and procedures and to understand how these will be implemented during operation of the proposed project facility for Unit 1. IFC reviewed a series of environmental and social impact assessment documents and permits for the proposed project as well as miscellaneous information describing the company’s environmental, health, and safety (EHS) management systems and corporate social responsibility programs, including information of the Edelnor facilities, which will be applied to the proposed project, including:

- Environmental Impact Assessment, Central Termica Andino, and related addenda;
- Environmental Permit (Resolución Exenta No. 0145/2007) issued by Chile’s National Environmental Commission, regional representation (COREMA), on May 16, 2007;
- Documentation of Health and Safety Management Programs and Procedures for the Edelnor facilities;
- Documentation of the project sponsor’s social and community programs in the project affected communities;
- Documentation on human resources policy and procedures of the Edelnor facilities;
- Environmental, health, safety and social safeguard requirements included in the engineering, procurement, and construction (EPC) contract for the construction of Units 1 and 2 of the proposed project.

Project description

The proposed project consists of the construction and operation of 2x165MWe circulated fluidized bed (CFB) technology thermal power units in northern Chile to be fired by a combination of coal, petroleum coke, and biomass fuels. The project sponsor is Suez Energy Andino (project sponsor), a subsidiary of Suez S.A. (France). The first 165MWe unit (Unit 1) is to be developed by Central Termoeléctrica Andina S.A., (CTA), while the second 165MWe unit (Unit 2), with essentially the same characteristics, will be developed through a separate special purpose company. The Unit 1 operator will be Empresa Electrica del Norte Grande S.A., (Edelnor), a company controlled by the project sponsor, which operates several energy generation assets in Chile’s Region I and Region II, including two pulverized coal and petcoke generation units with respective capacities of 165 MWe and 175MWe and a 250 MWe combined-cycle unit located adjacent to the proposed project site. The Unit 2 operator is to be determined at a later stage. Some operation facilities of the first 165MWe unit will be shared with the existing Edelnor facilities as well as Unit 2. If IFC is requested to participate in the financing of Unit 2, O&M of the second unit will be conducted according to the Environmental and Social standards of the IFC.

The project will be connected to the grid through the existing Chacaya substation, which is adjacent to Edelnor’s existing facility and therefore adjacent to the project. Electricity transmission to the principal offtaker for Unit 1 will require either the construction of a new stretch of approximately 200 km of double circuit transmission line (Chacaya – Crucero) or the new construction of a new stretch of approximately 110 km of double circuit transmission line to connect to the existing transmission line between Crucero – Escondida and the construction of a new substation (called COBRE) at the connection between the new and existing line. Final choice of optimal solution is under study.

The project will require limestone for sulfur dioxide (SO2) emissions control to be sourced from a yet to be determined mine, and potentially the construction of a new ash disposal site

Identified applicable performance standards

While all Performance Standards (PS) 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 System;
- PS2: Labor and Working Conditions;
- PS3: Pollution Prevention and Abatement; and
- PS6: Biodiversity Conservation and Sustainable Natural Resource Management.

PS4: Community Health and Safety does not apply as the project does not include the construction of a labor camp. Workers will originate or be housed in space available in urban centers such as the City of Antofagasta and the company will provide daily transport from these population centers and appropriate amenities/facilities during work hours.

Management of driver safety issues related to transport of people and materials during construction are operation can be adequately managed through compliance with Chilean driver licensing requirements; PS5: Land Acquisition and Involuntary Resettlement does not apply as resettlement was not required as part of the project land acquisition; PS7: Indigenous Peoples does not apply as no indigenous peoples are affected by project development; and PS8: Cultural Heritage does not apply as no cultural heritage resources were identified in the EIA.

Environmental and social categorization and rationale

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of projects 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 proposed project is located in an area zoned for industrial use, adjacent to other industrial and power generation activities. A mature, established, operating entity, Edelnor (the Unit 1 operator) and its parent entity Suez Energy Andino S.A. have a proven track record of effective management of environmental and social impacts from its projects in compliance with applicable regulations in Chile.

Key environmental and social issues and mitigation

The project site is zoned for industrial purposes and is surrounded by vacant land to the south and east, a public road and the shoreline to the north, and existing power generation facilities to the west. Other industrial activities in the area include additional power generation plants, a cement manufacturing facility, and a steel products manufacturing facility. The nearest and only residential area is the fishing community of Mejillones located approximately 3.5 km to the west of the proposed project site, also along the shore of Mejillones Bay. Mejillones has an approximate population of 8,500 while Antofagasta, the capital of the region, is located approximately 65 km to the south and has an approximate population of 350,000.

- PS1: Social and Environmental Assessment And Management Systems

- Environmental and Social Assessment:

An Environmental Impact Assessment (EIA) has been completed for the power generating components, including the fuel off-loading and storage and cooling water intake and discharge. The EIA includes a detailed evaluation of potential impacts and mitigation measures of the physical and biological environment (including the marine environment); human and social issues; cultural issues. The assessment of the physical environment included detailed evaluation of potential impacts to air, water, and soils associated with the proposed project atmospheric emissions, water effluents, and solid wastes (ashes). The evaluation of impacts to biological environment included an analysis of the marine environment in the project area of influence from where cooling water will be withdrawn and discharged. The human and social assessment included an evaluation of potential socio-economic impacts, primarily to the community of Mejillones. The EIA was prepared by Jaime Illanes y Associados Consultores, S.A., a reputed engineering and consulting firm in Chile. An Environmental Permit (Resolución Exenta No. 0145/2007) was issued by Chile’s National Environmental Commission, regional representation (COREMA), on May 16, 2007, as a result of the review and approval of the aforementioned EIA.

- Management Program:

During the construction phase of Unit 1, the EPC contractor will be required to prepare the respective, project-specific, environmental and social management plan (ESMP) to comply with the environmental and social conditions of the permit issued by COREMA and with the Edelnor’s Contractor Safety Management Program. The ESMP will specify mitigation measures for potential adverse impacts during the construction phase of the project as identified in the EIA and the environmental permit conditions, including any required guidelines and procedures to ensure proper environmental design, management, and monitoring. The ESMP will be consistent with the IFC General Environmental, Health, and Safety (EHS) Guidelines, including the specific sections on environment, occupational health and safety, and community health and safety applicable to a project construction phase.

Unit 1 will operate under Edelnor’s Integrated Management Policy (IMP) to the new project facilities to implement the mitigation measures identified in the EIA and the environmental permit conditions. Edelnor’s corporate quality and environmental, health, and safety management systems are certified under the ISO 9001, ISO 14,001, and ISO 18,001 requirements. The IMP is a policy framework which clearly articulates objectives, strategies, assignment of responsibilities, supervision and audit programs, and a feedback mechanism for the review of environmental and social policies. Comprising three key objectives, Edelnor’s IMP recognizes that safety, quality, and environmental protection are fundamental aspects of the ability to meet operational and business objectives. The key policy objectives include the following:

- Ensuring business continuity through compliance with applicable regulations, legal commitments with regulatory authorities, clients, and other external parties, with regards to the environment, safety, and occupational health;
- Continually improving on the activities of the company with the objective of meeting client needs, preventing environmental contamination, and prevention occupational health and safety risks through the design and implementation of an integrated management system based on ISO 9001, ISO 14001, and OSHAS 18001;
- Efficient and rational use of natural resources, raw materials and inputs, principally hydrocarbons and water resources.

- Organization:

The EPC contractor for Unit 1 will designate an experienced on-site EHS supervisor who will be familiar with the environmental permit requirements and IFC’s EHS Guidelines. The EHS supervisors will be responsible for the daily implementation of the construction phase ESMP by contractors involved in construction activities. During the operational phase of Unit 1, Edelnor’s dedicated environmental and occupational health and safety coordinators will have primary responsibilities for the implementation of the project’s EHS requirements including monitoring and reporting on the operational phase permit conditions and other applicable legal requirements following the policies and procedures included in Edelnor’s Integrated Management Policy (IMP). The on-site EHS coordinators will continue to be supported by Edelnor and Suez’s institutional management programs as outlined in the IMP. Edelnor will also continue to apply its corporate standard related to working with contractors, assuring the compliance of employees and contractors with national laws, IFC requirements, and company standards.

- Training:

CTA will ensure that the EPC Contractor for Unit 1 includes environmental and occupational health and safety (EHS) procedures and training organization in its manuals. New subcontractors will be required to understand the relevant aspects of the ESMP and IMP. Induction activities will include kick-off meetings to be conducted by experienced professionals responsible for EHS matters. During the operational phase of Unit 1, CTA will continue to organize internal training on the different EHS standards which conform to the ESMP and IMP.

- Monitoring and Reporting:

EHS coordinators working on behalf of the EPC contractor will conduct periodic inspections/audits and prepare periodic reports to evaluate compliance with environmental permit requirements and with the procedures outlined in the ESMP. During the operational phase, CTA will implement the monitoring requirements outlined in the environmental permits, including specific aspects related to emissions and discharges; impacts on ambient air quality; and impacts on marine environment as well as implement an appropriate internal and EHS audit program as described in the Integrated Management Program, reporting the results to site managers, regional managers, and corporate senior management.

- PS2: Labor and Working Conditions

The development of Unit 1 will employ about 1,100 workers at the peak of the construction period, averaging about 700 workers. The general contractor will be required to comply with all relevant requirements of Chilean legislation (including laws and regulations on acceptable conditions of work, monthly minimum income and maximum permissible workweek) and IFC’s Performance Standard 2. Construction and other contracts will specify occupational health and safety commitments to be observed by the contractors and subcontractors, as well as monitoring responsibilities.

During construction activities, the EPC contractor plans to maximize the hiring of local labor for all skill levels including semi-skilled and unskilled work as noted in the EPC contract documents. Influx of laborers will be actively managed to avoid burdening of local services and infrastructure. In this regard the company will provide, or require its contractors to ensure that, to the extent possible, members of local community are employed as construction laborers. Additional labor capacity will be employed from the nearest major population center such as the City of Antofagasta or other regional communities.

During the operational and maintenance phase of Unit 1, CTA will hire approximate 20 additional workers to supplement Edelnor’s existing workers, some of whom will also support the operations shared by existing and new facilities. Edelnor has a human resources policy which defines company and workers requirements and responsibilities with regards to a wide range of labor issues including such aspects as:

- Contracting procedures and terms of individual employment contracts;
- Working our, shifts, and overtime;
- Rest periods and vacation policy;
- Compensation;
- Occupational training;
- Contract termination;
- Grievance mechanism and procedures; and
- Occupational health and safety policy and procedures.

Chile has ratified the main ILO Conventions on trade union rights (Conventions No. 87 and No. 98), forced labor (Conventions No. 29 and 105), child labor (Conventions 138 and 182) and discrimination (Convention No. 100 and No. 111). National law offers protection in each of these areas. Chile’s Labor Code stipulates that the employer is obligated to take all measures necessary to effectively protect the lives and health of workers, maintain adequate safety and health conditions, and provide the necessary tools to prevent occupational accidents and diseases.

During the Unit 1 operational phase, CTA will apply Edelnor’s occupational health and safety program which includes a set of operating objectives based on the identification and quantification of workplace risks coupled with applicable legal and other requirements. To prevent workplace accidents and promote the health of its employees, Edelnor further has a set of separate documented procedures for employees and contractors which address the continuous identification of dangerous conditions, evaluation of associated risks, and implementation of control measures. Edelnor requires that contractors train employees in understanding workplace risks and their prevention and control, including the use of personal protective equipment (PPE), hazardous materials handling, and emergency response. Incidents and accidents are investigated according to a documented procedure so that steps can be taken to prevent reoccurrence.

- PS3: Pollution prevention and abatement

During Unit 1 construction, CTA will require the EPC contractor to comply with the EIA findings and environmental permit conditions (including associated monitoring requirements), IMP requirements, IFC’s Performance Standard 3 and the applicable construction phase aspects of the World Bank Group’s General EHS Guidelines to address the generation of emissions (i.e. fugitive dust from earth moving activities, and noise and exhaust from construction machinery), sanitary effluents from worker facilities, and non-hazardous and hazardous solids wastes. Construction wastes, primarily consisting of non-hazardous construction site debris, will be disposed of at a permitted municipal solid waste landfill together with any household type wastes. Hazardous wastes will be managed by licensed transport contractors and treated or disposed of in licensed facilities, which are located outside of the project region.

- Management of resources including energy, water, hazardous and other materials:

The project will use a fluidized bed combustion (FBC) technology that allows the facility to operate with a variety of solid fuels including coal, petroleum coke (petcoke, a waste by-product of petroleum refining), and biomass fuels such as wood processing waste. Flue gas treatment will be achieved through the injection of limestone in the circulating fluidized bed, which helps control SO2 emissions and the project will therefore require the use of up to 54 tons per hour of limestone. Limestone will be sourced from a mine whose location is yet to be determined.

Due to unavailability of groundwater or surface water resources in the region, the project will rely on a sea-water desalination plant to meet its entire boiler make-up and other process and domestic water needs. During construction, Unit 1 will be supplied by the Edelnor desalinization facility and during operation by its own facility.

Fuel oil for start-up and auxiliary purposes (including the limestone drier) will be off-loaded from an off-shore sea terminal and transferred via a conduction duct to Edelnor’s existing 4,000m3 above ground storage tank which is located inside an HDPE-lined containment area with a capacity to hold a release of twice the tank contents. Unit 1 will be serviced by a new 80m3 day storage tank also to be located in a lined containment area. The Environmental Management Plan (EMP) provisions for storage and handling of hazardous and other materials associated with the existing and new installations will include a detailed spill prevention and countermeasure plan (SPCC Plan) to address potential accidental releases in the ocean and land.

- Management of emission and discharges:

Maximum emissions of particulate matter (PM10), nitrogen dioxides (NOx), and sulfur dioxide (SO2) will comply with Chilean requirements and the World Bank Group Guidelines. Particulate matter emissions will be controlled by the use of an electrostatic precipitator (ESP). NO2 emissions will be minimized due to the relatively low combustion temperature of the selected technology, while SO2 emissions will be controlled through the use of limestone injection into the combustion process.

Particulate matter emissions will be controlled by the use of an electrostatic precipitator (ESP). NO2 emissions will be minimized due to the relatively low combustion temperature of the selected technology, while SO2 emissions will be controlled through the use of limestone injection into the combustion process.

Coal and petcoke will be off-loaded from the adjacent port of Mejillones, through which Edelnor already imports its feedstock. The port of Mejillones will not require any enhancements or modifications due to the proposed project. A new petcoke and coal storage facility will be built alongside the proposed power generation facilities and the Port of Mejillones.
Emissions of fugitive dust from these and the limestone storage areas will be controlled through the combined installation of wind fencing and the use of chemical or moisture controls.

The project will use a once through sea water cooling system with designed seawater intake capacity of 26,500 m3/hr per unit (including the amount required for the desalination plant) and thermal discharge with elevated temperature. The condenser cooling discharge water temperature will meet IFC’s thermal discharge guidelines (up to 3 Celsius at the edge of the mixing zone). The company will ensure that residual chlorine and/or other biocides used to treat sea water, remain within local permit and IFC EHS guideline levels. Treated waste water will be reused in the process or discharged on-land for irrigation of green belt as is current practice at the Edelnor facility. There will be no discharge of treated effluents into the marine environment.

The combustion process will generate for the reference fuels specified under the EPC contract, approximately 16.5 tons of a combination of non-hazardous bottom ash, purge material, and fly ash per unit per day which will be initially disposed at a facility currently in use by Edelnor and situated approximately 6 km from the project site. As such, the disposal practice will consist of earthen disposal cells with compacted layers of ash and native materials backfill. Ash materials will be tested regularly during the operational phase to confirm their non-hazardous composition. If the materials are re-classified as hazardous waste at any time during the operational phase, the company will manage them accordingly following Chilean regulations and World Bank Group EHS Guidelines. A new ash disposal site could be established about 20 km from the project at the request of municipal authorities.

- Management of impact on ambient conditions:

The existing ambient air quality levels of the proposed project site and nearby Mejillones have been monitored by Edelnor for the last 6 years as a condition of Edelnor’s existing environmental license. Edelnor operates three air quality monitoring stations, one of which is located within the residential area of the town of Mejillones and two others located in areas of highest expected ground level impacts from Edelnor plant emissions (located about 2 km outside of the town of Mejillones). The information collected at these stations has been used to establish baseline air quality levels for particulate matter (PM), NOx, and SO2 and to estimate the resulting ambient air quality levels following the projects incremental impacts. The monitoring program includes testing for vanadium and nickel which is emitted in compliance with permit requirements by the operation of Edelnor’s pulverized coal facilities (CTM1 and CTM2) which use a combination of sub-bitumous coal and petcoke. Baseline air quality has been determined to be well below Chile’s Primary Air Quality Standards (PAQSs) at the three air quality monitoring stations.

The project’s EIA has estimated potential impacts from operation of the proposed project, consisting of two 165MWe units and a limestone dryer. The air quality impact assessment conducted as part of the EIA has conservatively assumed the operation of two units, each with a nominal capacity of 200 MWe, both fueled by 100% petcoke. The cumulative assessment included worst case scenario emissions assumptions of the following additional sources located in the industrial area of Mejillones:

- Edelnor’s CTM1 and CTM2 facilities;
- ENAEX nitric acid and ammonium nitrate manufacturing facility (including current capacity and projected future expansion);
- FRM foundry facility (including current capacity and projected future expansion);
- Port of Mejillones and Mejillones Port Complex; and
- Small boilers from fishing companies located in the area.

Estimated incremental impacts from emissions of the proposed project and these additional sources were added to the baseline air quality levels based on monitoring information gathered between the years 2002 and 2005 from Edelnor’s air quality monitoring network. The results of the assessment indicate that the impacts from the project at the residential areas of the Town of Mejillones and at the point of highest potential impact (located about 2 km from the town) are predicted to be within Chile’s Primary Air Quality Standards (PAQSs). The incremental impacts of NO2, SO2 and PM are well below the relevant PAQSs. The conclusions of the above-referenced cumulative impact assessment were confirmed by the results of a more resent air quality impact study conducted as part of the environmental permit application for a proposed 600 MWe coal plant (known as the Angamos project) that will be located in the Mejillones Industrial area.

Ambient noise levels are predicted to meet IFC’s ambient noise level standards. Estimated levels based on the baseline assessment 65 dB(A) at plant boundary at day time and 55 dB(A) at night-time (57 dB(A) at sea side boundary), except in case of safety valve operation or filter pulse noise

- Management of GHG emission:

The circulating fluidized bed combustion technology selected for the project provides flexibility in the selection and use of a variety of fuels, including the use of biomass. The project has the technical possibility to operate up to 10% (calculated on energy content) with biomass (which may be applied following the required environmental authorization) in combination with coal or a mix of petcoke with coal in any proportion. The biomass fuels may be sourced from Chilean wood processing or other renewable resources which may therefore have the added benefit of off-setting potential emissions associated with coal and petcoke combustion. CO2 emission of Unit 1 are estimated at 1,217 million ton CO2 per unit per year (assuming a 100% plant load factor and the consumption of 50% coal and 50% petcoke), although actual emissions will depend on the mix of coal, petcoke, and whether biomass is used. The use of biomass from renewable sources may reduce total emissions by up to 34,500 ton CO2 per unit per year.

- PS6: Biodiversity Conservation and Sustainable Natural Resource Management

The EIA has identified the project area as a migratory route for several avian species, including two marine bird species which are listed as "Endangered" under Chilean law (gaviotín chico (Sterna lorata) and gaviota garuma (Larus modestus)). The EIA indicates that the project will not occupy or impact nesting or roosting areas for these avian species which have been identified to be located within the Mejillones Industrial area. Principal nesting and roosting areas for these species are reported to be located further north from Mejillones Bay, along the Chilean and Peruvian Coast.

The project area has also been identified as a migration route and feeding area for two species of marine turtles (golfita turtle and green turtle) a group of which settled for extended periods in the warmer waters adjacent to the thermal discharges of Edelnor’s and Endesa’s power generation facilities. The thermal discharge of the project is expected to further contribute as an attraction to these species. The through-screen intake velocity of the cooling water intake will be designed to avoid impingement or entrainment of aquatic organisms, including sea turtles. CTA will require the EPC contractor to implement protective measures of the turtles during construction activities

Client's community engagement

The project has been the subject of a comprehensive public consultation process which began with the publication of a summary of the EIA in the regional newspaper (Mercurio de Antofagasta) and in the Government’s Official Newspaper (Diario Oficial) on June 17, 2006, together with an announcement soliciting comments from the public for a period of 60 days. This publication and announcement were followed by dissemination of project information to residents of Mejillones and a community wide invitation for a public audience held on July 11, 2006, in the offices of the Municipality of Mejillones. The public audience included the assistance of community members and their leaders, officials from the Municipality of Mejillones, officials from the Chilean National Environmental Commission (CONAMA), and project company representatives. Written comments were received from members of the public and representatives of the Municipality of Mejillones and addressed by the company in detail as part of project permitting requirements. Written responses to community concerns are included in the environmental permit issued by CONANA.

CTA will contribute to Edelnor’s on-going participation in community programs which include scholarships for local high-school students and educational programs for school-aged and college students on energy efficiency, professional development and other topics (including an “open doors” program that allows high-school students a close look at facility operations), increasing the overall participation of the project sponsor in community development affairs.

CTA, together with Edelnor, will continue to publish the results of the environmental monitoring activities in an external website and in the local Municipal Library or other location accessible to the public. Results of Edelnor’s ambient air quality monitoring data are presently posted on the Edelnor external website: http://www.edelnor.cl/Productos%20y%20servicios.htm

Suez Energy Andino S.A. has further signed an Agreement for Community Development Programs (Convenio Marco de Colaboracion Entre La Illustre Municipalidad de Mejillones y Suez Enegy Andino para el Desarrollo Socioeconomico de la Comuna de Mejillones; signed between the project sponsor and the Municipality of Mejillones on October 4, 2007), which covers numerous community needs including: a one time contribution for the development of significant community infrastructure project; on-going assistance for a period of five years for improvements in artisanal fisheries; assistance for strengthening local worker training and educational programs; and collaboration in the development of social, cultural and recreational programs. The total financial contribution by the company for the implementation of these programs is approximately $575,000 over a period of 5 years.

Any enquiries and/or comments about the project may be directed to:

Valérie Barnich, Senior Manager
Finance and Acquisitions, Investments & Financial Advisory
Suez Energy Andino S.A.
Av. Apoquindo 3721, Piso 8
Las Condes, Santiago
Chile

Telephone 562 290 0418
Cell.: 56 9 9219 0435
E-mail: valerie.barnich@suezenergy.cl

Local access of project documentation

A copy of the full EIA documentation, including updates, is being made available to local residents at the Mejillones Municipal Library. The following complete set of documentation is also available in the IFC website:

- Environmental Impact Assessment (EIA), dated June 6, 2006, including all annexes;
- Environmental Permit (Resolución Exenta No. 0145/2007) issued by Chile’s National Environmental Commission, regional representation (COREMA), on May 16, 2007; and
- Agreement for Community Development Programs (Convenio Marco de Colaboracion Entre La Illustre Municipalidad de Mejillones y Suez Enegy Andino para el Desarrollo Socioeconomico de la Comuna de Mejillones) signed between the project sponsor and the Municipality of Mejillones on October 4, 2007.

IFC PROJECTS