Optima Energia

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	28383
Country	Mexico
Sector	Professional, Scientific and Technical Services
Department	Global Manufacturing & Services
Company name	Celsol SA de CV
Environmental category	B
Status	Pending Disbursement

Date ESRS disclosed	August 12, 2009

Previous Events	Signed: September 30, 2009 Approved: September 28, 2009

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’s appraisal of the project comprised site visits to the offices of Celsol, S.A. de C.V (“Optima Energía” or “the Company”) and some of its current clients including the Dreams resorts at Tulum and Puertas Aventuras and the Ritz Carlton hotel in Cancun. Environmental and social conditions were observed and discussed with project engineers and managers. In addition to site visits, discussions were held with Optima Energía’s management regarding human resources policies and procedures, management of environmental and social matters during project execution, and management of contractors.

Documents reviewed included Optima Energía’s human resources and purchase procedures, job descriptions, sample of contracts with sub-contractors and technical specifications of equipments/products to be installed in the hotels.

Project description

Optima Energía is a Mexican energy and utility service company working substantially in the Mexican tourism sector. Optima Energía provides energy services including an in-depth analysis of energy and water consumption in a property, identification and design of savings opportunities, installing the required equipment and maintaining the system during a contract period of typically 10 years while at the same time financing the investments. In a typical property, Optima Energía would develop and bundle cost saving measures, which could include installation of generators for use at times of peak tariff, installation of high efficiency air conditioning chillers, with recovery of waste heat for hot water and seasonal swimming pool heating, and often cooled by sea water, heat pump heating of hotel hot water, and reverse osmosis (RO) of seawater to provide potable water. Optima Energía enters into performance based contracts with its clients, where the savings in energy and water costs generated by the project during the contract period are used to pay back the capital investments. Financial savings are shared between the hotel and Optima Energía.

The project consists of implementing such bundled energy and water saving projects at up to six hotels, in Mexico.

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

The findings of the of the project appraisal indicate that there are no impacts related to PS5: Land Acquisition and Involuntary Resettlement; PS6: Biodiversity conservation and Sustainable Natural Resource Management, PS7: Indigenous Peoples and PS8: Cultural Heritage given that the project does not include any land acquisition and operations are performed within the footprint of existing hotels.

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 it has limited potential adverse environmental and social impacts.

Key environmental and social issues of the project include the following:

- Management capacity to handle environmental, health and safety, human resources and social elements,
- Terms of employment of Optima’s staff and its execution of installation work,
- Management of occupational health and safety during construction,
- Hazardous material management,
- Waste management and control of hazards to other users or occupants of the properties,
- Integrity of mechanical systems, construction / demolition.

These are all issues which can be professionally managed during well-executed construction works, which at a single property are on a relatively minor scale. The project is expected to have positive environmental outcomes, because projects to be implemented will reduce consumption of energy, thereby reducing greenhouse gas emissions, and may provide potable water through treatment of sea water, reducing pressure on water resources in potentially water-stressed environments.

Key environmental and social issues and mitigation

The company has presented information on its current practices and policies that seek 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 IFC’s Performance Standards. The information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow. Additional actions are summarized in the attached Environmental Action Plan (EAP).

Social and Environmental Assessment and Management System

Environmental and Social Assessment and Management

Optima Energía (OE) starts its assessment with a basic screen of new clients. Potential adverse environmental impacts of OE's work are limited, and the most consequential of these require permitting by the Mexican authorities as follows: (i) consideration of water abstraction for chiller cooling and for use in RO sets, and return of cooling water, requires a permit from SEMARNAT, which will only be provided after a study by a certified biologist has assessed biodiversity risk; (ii) Mexican permits are required for installation of generators of greater than 500 kWe; and (iii) sometimes OE has found it necessary to construct additional plant rooms, which also require permits.

OE will screen for local environmental compliance of its host projects.

OE's work can involve renovation/ replacement of heating services (particularly hot water) - systems which in the past may have used asbestos insulation. Screening for asbestos will be performed by OE.

OE outsources its construction services. Contracts require complete compliance with Mexican labor law. OE has a construction supervisor at each site during the installation process; these supervisors take account of EHS issues in their supervision, but this is not a formal requirement of the role or included within the job description which will be appropriately amended. OE provides ongoing management of plant performance after completion of the installation and commissioning work.

Organization and Training
OE has a clear organization chart, showing clear differentiation between Operations, Sales, Administration, Maintenance, Quality Control and Human Development departments. Human Development defines the Company's PS2 performance, while EHS management is essentially dealt with by the Directors of Operations and Maintenance, through the installation and maintenance work as described above.

OE gives considerable attention to training of its professional staff. It allocates an annual training budget, and pays for staff attendance at external events. However, on their return, the trainees are required to present on their learnings to other staff members. Staff are also expected to identify new technologies potentially suitable for inclusion in OE's bundled projects.

Monitoring and Reporting
OE includes real-time monitoring of the performance of its capital plant in its scope of supply. These show machine operation and status, including energy efficiency, and key operating parameter such as heating or cooling delivered, flow rates, temperatures and so on.

Labor and working conditions

Human Resource Policy and Management
A Human Development Manager, is in charge of OE’s human resources issues. OE has defined procedures and policies regarding: hiring, workers’ compensation, benefits, training and vacations, among other policies. The information is documented in form of procedures, in which responsibilities are well defined at different levels of the organization. The company has detailed job descriptions, defining the objective of the position, responsibilities, tasks, internal/external relations and tools needed.

Training is provided to employees, OE has a procedure to ensure proper training of the employees, each unit defines an annual training program based on the internal needs. The company has reported several external trainings, most of them, related to its technical operations (e.g. refrigeration, lighting, combustion, pumps, etc). OE will include training related to Environmental protection and health and safety aspects of the projects.

Worker’s Organizations
OE is a small company, currently of 38 employees, not of the type that would normally be unionized. However OE management did confirm that they would not prevent company unionization were this to be requested. There have been no such requests. OE's contractors and their subcontractors do typically have unionized workforces.

Retrenchment
Optima Energia's employment of subcontractors will naturally fluctuate according to business activity. Expansion rather than contraction of the core business is expected.

Non-Discrimination, equal opportunities and protection of the workforce
Neither OE nor its contractors uses child or forced labor, not is there any suggestion of such practices in OE's supply chain, which consists essentially of complex and efficient capital equipment.

Sample contracts provided to IFC include specific requirements that OE's contractors observe all labor laws of Mexico, such as payment of salaries, workers compensation and social security payments. OE works on long-term construction contracts and has never observed workers "going missing."

Optima has defined compensation policies, which include commissions for the completion of projects. Employees have a basic salary, which is over the minimum legal salary of Mexico and the commissions adds between 31 and 58% of that basic salary.

Pollution Prevention and Abatement

Optima Energia is an energy service company (ESCo) providing energy efficiency service and supplying potable water by RO of seawater. Its products are an energy audit and then project financing, installation and maintenance on a performance contracting basis. These projects actively promote resource efficiency. The only possible pollution issues are (i) heat from chiller condenser water; (ii) disposal of RO concentrate and (iii) air emissions from standby generators. (i) and (ii) are covered by Mexican permitting while (iii) is addressed through machine specification.

Construction waste is managed by contractors in accordance with Mexican law, and this is stipulated in contracts with M&E contractors.

Hazardous wastes management is contractually assigned to M&E contractors. Hotels with OE generators have bunded fuel storage areas. Some air conditioning chillers use HCFC 22 refrigerant. This will be forbidden in new equipment after 1/1/2010 by the Montreal Protocol, though its use in servicing will be permitted for a further ten years. Optima Energía will not install new HCFC 22 equipment beyond than planned for the next installation for which contracts have already been placed.

Community health, safety and security

The public health aspects of Optima Energia's work relate to control of legionella in cooling towers (where used) and in domestic hot water systems, and potable water quality.

OE uses a non-chemical water treatment technology for cooling towers, which controls both scale and bacterial accumulation in cooling towers. Potential legionella in hotel hot water systems will be controlled by storing water at 60°C, in accordance with World Health Organization recommendations for pumped circulation systems.

OE undertakes monthly tests of cooling tower water (where towers are maintained) potable water and hotel hot water and tests and has never detected legionella or other organisms or compounds of concern.

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