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| USJ |
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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. |
| Project number | 26135 |
| Country | Brazil |
| Sector | Agriculture and Forestry |
| Department | Agribusiness |
| Company name | USJ Acucar e Alcool S.A. |
| Environmental category | B |
| Status | Pending Disbursement |
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| Date ESRS disclosed | January 22, 2008 |
| Date revised ESRS disclosed | March 28, 2008 |
| Previous Events | Signed: March 27, 2008
Approved: March 27, 2008 |
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| View Summary of Proposed Investment (SPI), click here |
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| Overview | Category & Applicable Standards | Key Issues & Mitigation | Community Engagements | Client's Documentation |
| Overview of IFC's scope of review |
| The review of this project consisted of appraising environmental, health and safety, human resources, land acquisition, community engagement and social communication information provided by the company and through first-hand observation and data collection through site visits to USJ production facilities located in Araras (Sao Paulo State) and in Quirinopolis (Goiás State), including own farms and suppliers’. IFC’s review included a detailed assessment of environmental and health & safety aspects at the mills; occupational health & safety and labor conditions terms of employment in sugarcane plantation and harvesting operations as well as in operation of expanded milling facilities; labor practices at own operations and in the supply chain; quality and sustainability of potable water supply; management of air emissions from all sources including any bagasse-fired steam and co-generation activities; pest management in agriculture and raw material/product storage activities; management of solid, liquid and hazardous wastes from agriculture and processing activities; energy consumption and energy efficiency, including greenhouse gas emissions and carbon finance opportunities; community engagement; land acquisition process for sugarcane plantation development, facilities expansion, and land use permitting; and biodiversity. IFC also visited USJ farm in Mato Grosso, where the main activity over the years has been cattle ranching. |
| Project description |
USJ has a three-year investment program of approximately $355 million which began in FY2007 and will end in FY2009 to build and expand two sugar and ethanol mills in Goias. The investment program will increase USJ’s sugar cane crushing capacity from 5.5 to 10 million mt per year, with most of the expansion in sugar cane supply coming from small and medium farmers in the state of Goias that currently farm lower return crops. The investment program includes:
- doubling capacity at its Quirinopolis mill (Goias) from 2.25 to 4.5 million mt,
- building a 2.25 million mt greenfield mill in Cachoeira Dourada (Goias) and
- increasing electricity co-generation capacity from sugarcane bagasse by 54MW. |
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| 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:
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
- PS6: Biodiversity Conservation and Sustainable Natural Resource Management
Issues relating to PS 7: Indigenous peoples have not been identified in the areas of influence of the project, and according to the client there has been no interaction at any of their farms with Indians or quilombolas in Sao Paulo or Goiás. After visiting the Mato Grosso farm (Nova Losan), it was considered that there are no current or potential impacts on indigenous peoples at the moment.
Issues relating to PS 8: Cultural Heritage has not been identified at present. |
| 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. Corrective actions identified to address these issues are listed in the attached Environmental and Social Action Plan (ESAP).
Key environmental, health and safety, human resources and social issues in a project in this industry sector include the following:
- Management capacity to manage environmental, health and safety, human resources and social risks and issues;
- Assessment and integrated management systems to ensure environmental, health and safety, human resources and social performance;
- Terms of employment and working conditions in own operations and sugar cane suppliers;
- Occupational Health and Safety in own operations and sugar cane suppliers;
- Effluent management;
- Monitoring and control of air emissions;
- Solid and hazardous waste management and disposal;
- Hazardous material management; and
- Land and environmental regularization in own farms and rented farms. |
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| Key environmental and social issues and mitigation |
The company has presented extensive information on its current practices and procedures to address environmental and social risks and impacts to ensure that the proposed Project currently complies with or will, upon implementation of specific additional agreed measures, comply with host country laws and regulations and the IFC Performance Standards on Social and Environment Sustainability and environmental, health and safety guidelines. Information about how these potential impacts are or will be addressed by the sponsor/project is summarized in the paragraphs that follow. Additional actions are summarized in the attached Environmental and Social Action Plan (ESAP).
- Integrated Management Systems:
Environmental and Social Assessment: Full Environmental and Social Impact Assessment Studies (ESIA) were carried out for the Greenfield operations in Quirinópolis and Cachoeira Dourada, as part of the environmental licensing procedures of the State of Goiás. They contain important information on environmental and social baselines, potential impacts and effects, appropriate corrective measures and community concerns.
Environmental and Social Management System: USJ has a well established management system, but due to the rapid expansion of the company environmental, health and safety and social aspects are not managed in a fully consistent manner. The company will enhance its corporate level capacity to manage EHS issues by recruiting and designating clear responsibilities and decision making power to one person at a corporate level and one for each of the two existing mills. These people will report directly to the corporate operations manager. In accordance with the attached ESAP (Environmental and Social Action Plan), USJ will implement an integrated management system at the corporate level that will provide a framework to consistently identify risks and opportunities in the management of its environmental and social responsibilities at all its existing facilities and future expansions or acquisitions. This will include the development of an integrated EHSS (Environment, Health & Safety, and Social) policy, EHSS procedures and implementation at all facilities and plantations. This systematic approach will also include environmental & social performance of current and future sugar cane suppliers and renters at the farm in Mato Grosso.
- Labor and Working Conditions:
Labor and working conditions are an important consideration at USJ’s operations. All employment relationships are in compliance with national labor law. USJ currently has 3,393 employees in all units, and aims to have 4,243 employees on board by 2009. It is worth noting that in 1996, before a major restructuring of the company due to a crisis in the sector, they had 5,827 workers. USJ has increased by 25% their sugar cane production since 1996, with a corresponding 41.8% decrease in the workforce. There are two main reasons for this: a) restructuring of the company (including the sale of one mill) and b) an aggressive mechanization programme. USJ runs a traineeship programme for sugar cane workers that are seeking to qualify as drivers and maintenance staff for the machines, in partnership with the local trade unions.
Human Resources Policy: USJ has a human resources policy which has been recently upgraded with the support of consultants from FGV (Fundação Getúlio Vargas) based on competency models. They have not yet disseminated it to all workers, although management has communicated that a new policy was being launched. The client does not have a formal grievance mechanism in place; however, they have an “open door” policy at all levels, whereby workers approach HR at any point in time and also social assistants that visit the factory regularly. A formal grievance mechanism will be developed and implemented as described in the ESAP. Regarding disciplinary procedures, they follow the CLT (Brazilian Labor Legislation) which provides clear guidance on the steps that need to be taken before an employee is fired. These steps include a first notification (oral), a written communication, a suspension and finally firing.
Workers Organization: The client follows national law on the issues of establishing collective agreements with responsible trade unions, in order to establish the salaries and benefits for each category. USJ has had labor suits filed against them, mainly due to overtime and non-compliances with NR 31 in their rural operations. After these allegations were made, the company implemented mitigation measures and installed an electronic time control at the mill and plantations adjusted to the requirements of NR 31.
Non discrimination and equal opportunity: The company has a general statement regarding non-discrimination. Medical exams are requested as part of the hiring process and according to the function the worker will perform. No HIV or pregnancy testing is performed as part of the hiring process or regular medical screening. The company monitors general diversity statistics. Regarding gender, in Araras they have around 95% male employees and in Goiás around 94% male employees at mill and plantation operations. Most women employees work in the administrative area. Regarding race, in Araras they have around 37% of black or mulato workers in non-managerial positions. In Goiás, they have around 54% black or mulatto workers in non-managerial positions. Regarding the disabled people’s quota established by Brazilian Law, they currently have 1% of their work force of disabled workers, thus they need another 4% to reach the 5% target. As part of the agreed ESAP, USJ will develop a plan to ensure meeting the disabled people’s quota set by the government.
Protecting the Work force: USJ ensures that no Child Labor or Forced Labor is used at their operations through their hiring and selection procedure. Regarding their supply chain, USJ is in constant dialogue with suppliers providing technical assistance and monitoring compliance regarding labor (and environmental) issues. USJ checks if suppliers are in the dirty list for slave labor every six month. In Goiás, USJ is the pioneer in setting standards for labor aspects in the region. They have established labor requirements to be included into the contracts with suppliers; set up a lodge to accommodate workers; and provide technical assistance on occupational health and safety aspects. Both USJ’s own farms and suppliers are regularly audited by State and Federal Labor audits. USJ has been fined for specific non-compliances related to provision of cool water in the fields, number of seats in the bus, and first aid kit availability. The company has been proactive and made efforts to do the necessary adjustments required by the auditors. As part of the integrated management system, USJ will develop and implement a screening procedure for suppliers at all their operations and establish a supplier database which would allow them to better identify and manage the labor and environmental (see PS6) risks in their supply chain.
Migrant workers: IFC identified migrant sugar cane cutters as the potentially most vulnerable group at USJ operations. These migrant workers come to São Paulo, Quirinópolis, or Goiás, normally from Minas Gerais State (Vale do Jequitinhonha) or Northeastern States. They may be seasonally hired directly by the client or by its suppliers. The salaries of those directly hired by USJ comply with national minimum wages and collective bargaining agreements, and workers are lodged in housing provided by the company or suppliers. The appraisal team paid particular emphasis to working conditions, particularly in the supply chain, due to general concerns about the treatment of migrant workers in this sector. It is worth noting that USJ strictly follows the law which allows workers to work 8 hours a day and get the agreed salary for fulfilling this hourly commitment. Extra hours occur occasionally and are paid accordingly. They do have production targets and do get bonuses in case they produce over this target. Even in case they produce less than the daily target (8 tons) they will get their equivalent of a daily pay. Evidence that workers are forced to work in order to reach a specific production rate or that they work regularly for more than 8 hours a day was not found during the appraisal.
Occupational Health and Safety: USJ has an efficient occupational health & safety management system implemented at their facilities. OHS issues are managed effectively at the plant level by designated OHS managers who report to operations and agricultural operations managers. Monthly internal audits are performed at both mills and results are reported to senior management. Fire safety and signage is visible and adequate. Personal protective equipment (PPE) usage at the mill was consistently good at both locations. As part of the ESAP, USJ will monitor workplace air quality and noise and implement any necessary corrective actions implemented. Both mills and associated infrastructure are well maintained and although equipment at the Araras mill is not new, the company continuously implements measures to ensure a safe and sanitary workplace environment. USJ has a well established emergency preparedness and response plan. Each mill performs a drill every year. At all plantations, the company provides PPE (Personal Protective Equipment) to harvesters. They also have supervisors who ensure that workers are properly hydrated during their working hours and who provide first aid. Accident statistics provided by the company only includes operations at their mills. As part of the ESAP, the company will implement a new procedure which will ensure proper recording, reporting and mitigation of accidents at sugar cane plantations. For the first year, the information will be the baseline for future comparison and corrective measures. This will include operations at owned and operated plantations.
- Pollution Prevention and Abatement:
Air emissions: Boilers are the single largest source of air emissions from USJ’s operations. Boilers burn bagasse during the harvesting season and bunker fuel depending on energy supply needs during the non-harvesting season. At present the company is not monitoring stack emissions for particulate matter, NOx and SOx at any of their mills. As described in the ESAP, the company has agreed to monitor stack emissions during the harvesting period in order to have a baseline for comparison and implementation of any necessary corrective actions; and also monitor stack emissions when boilers use bunker fuel. The company is committed to ensuring that all emissions sources meet the relevant WB/IFC guidelines. The electricity generated is used at the mills and the excess is distributed to the national electricity grid. As part of the ESAP, USJ will implement a monitoring program for all operations to ensure compliance with national requirements and applicable WB/IFC guidelines for emissions from power plants.
Effluents: USJ is improving their performance in managing its effluents. Effluents from both mills include:
- process wastewater from sugar production,
- wastewater from cane washing,
- wet scrubber blow down from stack gas scrubbing,
- miscellaneous wastewaters, and
- stormwater.
At the Araras mill and as part of the requirements under Brazilian regulation, unlined sedimentation ponds and channels will be lined by 2012. At the mills, effluents are used in irrigating their fields within a radius of 25 kilometers. Although in Brazil groundwater monitoring is not required for land application of untreated effluent at the present time, as part of the ESAP, USJ will develop a groundwater monitoring program to quantify the impact from storage and irrigation with wastewater, and conduct a study of wastewater management at all facilities. Recommendations for wastewater management improvements will be implemented according to the agreed ESAP. Sanitary wastewater is discharged to the municipal treatment system.
Wastes: Solid and hazardous waste from USJ’s milling operations are primarily bagasse, ash from wet scrubbers, sand and lime sludge from cane wash water treatment, and empty plastic containers from miscellaneous uses. Bagasse is used for energy generation at the mills. Ash, sand and lime sludge from cane wash and wastewater treatment facilities are disposed of on land in areas designated by the agriculture division. Management of solids at the mills complies with local regulations and is consistent with good international industry practice. Hazardous waste management at all facilities complies with local regulations. Hazardous materials including fuel and oil are stored in tanks with secondary containment walls and USJ is responsible for monitoring and maintenance. Solid and hazardous waste from agricultural operations are typically those from harvesting operations and storage, transport and miscellaneous usage of farm chemicals including herbicides, fertilizers, fuel etc. Waste from harvesting operations (such as remnants of sugarcane) is left on the field as organic supplements for the soil.
Sustainability of Water Resource: Sugarcane cultivation in USJ’s operations relies on natural rainfall in the State of Sao Paulo, and the use of mill wastewater in land application, particularly in the State of Goias. Extraction of water from surface or groundwater sources for process operations is done at both mills. USJ has obtained a license from the state government to extract water from surface water at all mills. Water usage at the mills is variable and ranges from about 1.6 m3/ton-cane at the Araras mill, to about 0.6 m3/ton-cane at the Quirinopolis mill. Water consumption at the Araras mill is above the benchmark for this industry sector. Water consumption at Quirinópolis plantation is about 600m³/hectare, at Araras plantation the irrigation is not necessary. As part of the ESAP, USJ will implement a plan to ensure reduction of water consumption at all facilities. USJ uses all its water effluent to irrigate sugar cane plantations.
Greenhouse Gas Emissions: USJ generates all its energy from sustainable resources through cogeneration of electricity from burning bagasse at Quirinopolis and Araras. Estimated carbon dioxide emissions from the two mills exceed 120,000 tons annually (70,000 tons of CO2 for the Araras mill, and 50,000 tons of CO2 for the Quirinopolis mill). Cogeneration at Quirinopolis generates on average 61,279 tons CO2 carbon credits per year. Estimated reduction of CO2 emissions per year are as follows: for the year 2007 = 20,522 tons of CO2; for the year 2008 = 47,878 tons of CO2; for the year 2009 = 64,846 tons of CO2; and for the period 2010-2013 = 73,926 tons of CO2). USJ will quantify GHG emissions from all its facilities on an annual basis and report monitoring results to IFC through the Annual Monitoring Report.
Energy Efficiency: USJ’s operations comprise facilities with equipment of differing energy efficiencies. Energy efficiency is tracked closely as a performance indicator for all facilities. Energy consumption at USJ’s facilities varies from 600 kg steam /ton-cane at the Araras mill to 450 kg steam/ton-cane at the Quirinopolis mill. To generate 1 kWh of electricity, it is necessary to produce 6.3 kg of steam. There is potential for further energy efficiency measures to be implemented at the Araras mill for reduction of energy consumption.
Integrated Pest Management: Integrated Pest Management is used at all plantations. Only approved chemicals and fertilizers are used, and application rates and methods are adapted to optimize usage. No internationally prohibited or WHO Class 1a and 1b pesticides are used. USJ has a research center at the Araras mill, and actively works to improve pest management on sugar cane plantations and minimize the use of chemical pesticides. Handling, storage and use of PPE for agricultural chemicals and herbicides complies with national regulations.
Community Health and Safety
Potential risks to communities from USJ’s operations are primarily from aerial application of herbicides. Most locations use aerial spraying of crops by licensed companies using crop dusting airplanes which comply with local regulatory requirements. To improve oversight of these operations and minimize risk, and as part of the ESAP, USJ will update their policies and procedures to avoid the risks and impacts to health and other crops associated with aerial spraying of herbicides. In accordance with the ESAP, USJ will also inform and reduce nuisances to nearby communities during aerial spraying.
Land Acquisition
Land issues for USJ have to do with land regularization of their own farms in São Paulo, Goiás and Mato Grosso and those they rent in São Paulo and Goiás. In São Paulo they own 19,327 hectares of land and rent another 12,974 hectares. The client is in the process of regularization, according to Law 10.267. In São Paulo they have not had any conflict over land or invasions. In Goiás, they have 4,000 hectares of owned land and 12,459 hectares of rented lands. As part of the ESAP, USJ will provide IFC with a list of all owned and rented farms, including current status on land regularization, as well as the time frame for regularization, compliant with Law 10.267.
In Mato Grosso, the land regularization situation is well advanced towards reaching compliance with Law 10.267. The company has carried out the georreferenciamento geodésico of the total area held as a joint venture (Fazenda Cachimbo), which is a GPS coordinate associated to the placing of physical marks (an official stone mark) at the key physical boarders of the farms, and has registered it at INCRA (National Institute for Colonization and Land Reform). USJ will provide all the documentation relative to this regularization process, including the final documentation of Nova Losan’s farm borders (their share of the joint venture), which will be obtained within six months. Although the Fazenda Cachimbo has been subject to invasions in the past decades and they lost over 100,000 hectares (out of a total of 240,000 that used to hold the joint venture) the current boarders of the Nova Losan farm are consolidated, being surrounded by regular colonos and semi-urban areas. The more invasion prone areas, which border the landless peasants’ rural settlements, are currently not near Nova Losan’s own borders. Regarding invasion by artisanal miners, which occurred in the early 1990’s in Nova Losan’s current area, there have been a number of geological studies carried out and no gold was found in those areas, thus the risk of invasion by artisanal miners is also extremely low.
- Biodiversity Conservation:
Protection and Conservation of Biodiversity: Brazilian regulations define requirements with regards to protection of biodiversity, especially in areas like the Legal Amazon. Biodiversity aspects for USJ are related to rural properties and rented areas in the states of São Paulo, Goiás and Mato Grosso. National regulation requires them to obtain an environmental license for all of their own properties. As part of the ESAP, USJ will provide a list of all owned and rented farms, including current status on environmental regularization, as well as the time frame for regularization. For their São Paulo operations, USJ completed a study of the environmental liabilities of all their farms, describing status with regards to Area de Proteção Permanente (APP), permament protection areas, and Reserva Legal (RL), or legal “set aside” forested areas. In order to comply with the requirement of APP, the company has implemented an environmental project called Margem Verde which ensures that only native species are used for reforesting APP areas.
For the Mato Grosso farm, and as part of the ESAP, USJ has to comply with State and Brazilian legislation regarding environmental regularization and request the LAU (Environmental License). The farm is located within the Amazon Biome; but only once the property in registered in the SLAPR system (first step towards licensing) will the Licensing Department confirm that they need to set aside 80% of their total area as legal reserve. In case they do, USJ will not have enough preserved areas and will have to adjust either by reforesting or off-setting in another area within the same hydrological basin. The company has estimated that around 60% of their area is well preserved.
Indigenous Peoples
After visiting Nova Losan farm it was considered that there are no current or potential impacts on indigenous peoples at the moment. The farm is located in the same sub-region (and hydrological basin) as Parque Nacional do Xingu, Terra Indígena Panará and Terra Indígena Menkragnoti, however it is physically removed from them. The road MT 322 crosses the Nova Losan Farm and ends in the Parque Nacional do Xingú a few hundred kilometers away. The river Peixoto Azevedo and its affluents flow through the farm and these indigenous areas, however they flow from the Terra Indigenas to the farm, thus the farm is downstream from these areas. According to the macro-zoning mapping of Mato Grosso, the farm is not in the area of influence of any of these Terras Indigenas. Farm staff has never had interaction with indigenous peoples from any of these areas and have never hired any indigenous peoples to work either. |
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| Client's community engagement |
USJ has informal procedures to handle information disclosure and inquiries from the public. In Araras they have a responsible person handling the process. Inquiries about broader environmental and social issues in the sugar cane sector are channeled to UNICA (União da Agroindústria Brasileira). Due to their rapid expansion to other areas, USJ is aware of the need for a formal grievance mechanism and is currently recruiting a Communications Officer.
Public consultation was undertaken as part of the licensing process for the mill in Quirinópolis and Cachoeira Dourada. The environmental and Social Impact Assessments (ESIA) were presented by the company in different meetings attended by interested parties. Aside from those two particular instances, which are required by law, they have not engaged with the communities in a regular and proactive manner.
Community engagement through social responsibility projects occur in Araras through two organized projects: a) Usina do Saber (partnership with local school, towards which they contribute R$220.000 a year) and b) Margem Verde (environmental education project). In addition to these initiatives, USJ regularly gets requests from local entities for donations in the areas of education, health services, recreation and others. The Board of Directors decides these requests according to the USJ social responsibility policy and amount of donation. USJ has published a Social Balance report according to IBASE’s indicators in 2005/6, which is available on their website. The report for the 2006/7 period will be published in August 2008. As part of the ESAP, USJ will benefit from structuring and practicing a more systematic social investment by developing a robust process and engaging with local CSR entities. |
| Local access of project documentation |
This ESRS and ESAP will be locally disclosed at:
Addresses:
Araras: City Hall – Agency of Science Technology and Development;
Quirinopolis: City Council
Cachoeira Dourada: City Council
For any further question or comments please contact:
Name: Carlos Alberto Orzari, Financial Administrative Manager
Address: Fazenda Sao Joao, CP 13 / CEP 13600-970 - Araras – São Paulo, Brazil
Phone number: +55 19 3543 7800 |
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| Availability of Full Documentation |
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| Information Disclosed |
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