Oleoproductos de Honduras S.A. de C.V.

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	27924
Country	Honduras
Sector	Food & Beverages
Department	Agribusiness
Company name	Oleoproductos de Honduras S.A. de C.V.
Environmental category	B
Status	Pending Signing

Date ESRS disclosed	March 31, 2009

Previous Events	Approved: June 22, 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

The appraisal of this project consisted of a review of technical, environmental and social information provided by the Company, interviews with company management, staff, and representatives of several local communities, as well as site visits to the Company’s industrial and agricultural operations in Honduras by a social and an environmental specialist.

Project description

The Project will consist of a corporate loan to Grupo Jaremar, a vertically-integrated palm oil and food company in Honduras. The Company is seeking funds primarily to:

- increase production capacity in its edible oils divisions
- expand its plantations of oil palm
- build a biogas facility to co-generate electricity for its own consumption and
- refinance short-term debt.

Identified applicable performance standards

All Performance Standards are applicable to this investment and IFC’s environmental and social due diligence indicates that this investment may have impacts that 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

The Company’s operations are not located in close proximity to any indigenous communities and all land acquired is converted agricultural land. The Company’s land acquisition protocol will exclude land that is not already converted to agriculture or may have cultural or archaeological value and thus, no impacts on cultural heritage sites are expected.

In addition, the following Guidelines are applicable to this project:

- Environmental, Health and Safety General Guidelines (April 30, 2007)
- EHS Guidelines for Food and Beverage Processing (April 30, 2007)
- EHS Guidelines for Oleochemicals Manufacturing (April 30, 2007)
- EHS Guidelines for Plantation Crop Production (April 30, 2007)
- EHS Guidelines for Vegetable Oil Processing (April 30, 2007)

Environmental and social categorization and rationale

This is a Category B project under IFC’s Policy on Social and Environmental Sustainability because a limited number of specific environmental and social impacts may result that can be avoided or mitigated by adhering to generally recognized performance standards, guidelines, design criteria, local regulations and industry certification schemes. Oil palm plantation development is occurring on already cleared agricultural land, and there is thus no destruction of or impact on critical habitat involved. Land acquisition is on a willing buyer-willing seller basis, and there is no involuntary displacement of any people. There are no indigenous peoples’ ancestral lands in the area, and Pech and Garifuna communities are not located near the Company’s operations and are thus not expected to be adversely affected by the project. The company is working to actively upgrade its environmental protection capabilities and will ensure that its operations meet international standards for the sector. Eventually, independent, third-party certification for oil palm cultivation and processing will also help ensure that this project meets international standards for environmental and social management. As a result, the Category B designation is appropriate.

Key environmental and social issues and mitigation

The Company has presented information that indicates that the proposed project will be developed to comply with IFC’s environmental and social requirements, including host country laws and regulations, the IFC’s Policy and Performance Standards on Social and Environmental Sustainability and the applicable environmental, health and safety guidelines cited above. The information about how potential impacts will be addressed by the Project is summarized in the paragraphs that follow. Further information is provided in the attached Environmental and Social Action Plan (ESAP).

SOCIAL AND ENVIRONMENTAL ASSESSMENT AND MANAGEMENT SYSTEMS

Environmental and Social Assessment: Grupo Jaremar has undertaken environmental assessments, containing health and safety information, as well as some general socioeconomic information, as required by Honduran law. Environmental Assessments were prepared for the most recent biogas, biodiesel and biomass energy projects, as well as for the two extraction plants and the agricultural operations based in San Alejo. No assessments were produced for the food processing plants because these facilities existed before the new environmental assessment law came into being. However, these facilities are adequately covered by the assessment undertaken for the biomass boilers which are located at these same two sites. While the social impacts of the Company’s operations and activities are largely positive by virtue of job creation, potentially problematic impacts still need to be assessed in order to ensure their mitigation.
Management System: As of approximately mid-2008, all of Grupo Jaremar’s plants are certified ISO 9001:2000. These certifications provide a useful foundation for developing a Social and Environmental Management System and this type of structured and systematic approach and thinking will be applied to managing the Company’s environmental and social impacts with the goal of obtaining ISO14001 certification in the near future. Currently, mitigation and monitoring is undertaken at the level of individual companies but a consistent corporate-wide approach is expected to make these activities more rigorous and effective.

Organization: The organizational structure to support environmental, health, safety (EHS) and social activities is decentralized and at the level of individual companies. General Managers and quality control managers with some experience in EHS handle these issues, while Human Resources is responsible for community relations and philanthropy. A corporate-wide EHS Manager will be employed by the Company to lead and coordinate these activities.

Training: The Company offers training opportunities both to permanent and temporary employees, mostly on-the-job and related to Occupational Health and Safety (OHS) and fire safety. Additional external training takes place through the government training agency INFOP (Instituto Nacional de Formacion Profesional), in different subject areas, including technical skills, information on labor laws, company policies, ISO 9001, etc.. A 3-months training program for more skilled employees is offered through Instituto Polytecnico Nacional. In 2008, two ISO 9001 audit reports recommended that the Company improve its record keeping and evaluation of the training provided to workers.
Monitoring and Reporting: While monitoring does not exist at the Group-level, at the individual company level, semi-annual Mitigation & Monitoring reports are produced for the Secretary for Natural Resources Environment (SERNA) and each Company is required to submit this report to keep its Environmental License in good standing.

LABOR AND WORKING CONDITIONS

Human Resource (HR) Policy and Management: The Company employs about 3,000 staff (and up to 3,600 in peak season). The Company follows Honduran laws related to minimum wage and other labor issues. Plantation work is piece work (i.e., based on productivity) but the minimum wage is guaranteed. All workers are hired directly through the Company and in the rural areas, workers come primarily from adjacent communities. Medical benefits are provided to all workers. HR units are decentralized and fairly independent from each other, such that aggregated HR information at the corporate level is insufficient. At the individual company level, the record keeping of employees, including their age, is thorough. At the corporate level, Grupo Jaremar does not have a consolidated Labor Policy or Manual, but company-specific ‘internal regulation’ in the form of booklets, which are shared with workers upon hiring. GJ will develop a corporate Labor Policy, including provisions about how they will screen and monitor the labor practices of their contractors (e.g. transportation, vehicle maintenance) and, to a certain degree, their suppliers (with regards to child labor in particular).

Workers Organizations: The plants and plantations are not unionized but the ‘internal regulation’ shared with workers clearly state that the Company cannot dismiss or otherwise discriminate against its workers because of their affiliation with a union or participation in any official union activities. A formal grievance mechanism for employees will be established in order to document complaints and their resolution, as well as providing a mechanism for anonymous grievances. An OHS system exists that could be broadened to other labor issues or replicated to address non-OHS-related problems.

Non-Discrimination and Equal Opportunity: Grupo Jaremar has a non-discrimination policy and procedure since 1997 and there is no evidence of gender or any other type of discrimination.

Protecting the Work Force: The stated minimum employment age is 18. Dates of birth are recorded on employee lists and this informal policy appears to be enforced, although the internal regulations are based on Honduran Law which sets the minimum age at 16. A more formal policy statement and procedure on this matter is recommended.

Occupational Health and Safety: OHS is important to GJ’s management and it is promoted in various ways, including public events organized jointly with other companies to recognize OHS achievements and a system for reporting “quasi-losses” (incidents) in order to prevent them before they happen. There are local OHS committees that meet on a regular basis and document their meetings. OHS training is provided to employees, including for the fire brigades, and periodic audits are undertaken by a retired fire captain. Use of personal protective equipment needs to be improved in some instances and the recording of incidents and accidents would greatly benefit from improved analysis of root causes and additional information about lost-time and an aggregation of the numbers to allow the Company to compare incident rates between different facilities, observe trends, and plan improvements.

POLLUTION PREVENTION AND ABATEMENT

Pollution Prevention, Resource Conservation and Energy Efficiency: GJ is using various technologies to reduce wastes and create savings, most notably through the implementation of their biomass boiler and biogas recovery projects. These projects reuse large quantities of process-related wastes, reduce utilization of highly polluting bunker fuel, create renewable energy sources, and improve the quality of wastewater effluents. The Company developed a water savings and recycling plan for one of their operations that will result in a 10% annual decrease in their water consumption. Starting in March 2006, recycling of wastewater from the treatment lagoon led to a 44% drop in the amount of water requiring treatment. Water use efficiency in GJ’s other processing plants still allows considerable room for improvement as unnecessary water-use places additional demands on already insufficient wastewater treatment systems.

Waste: GJ companies produce a wide range of solid, liquid and gaseous wastes. The main solid waste produce consist of organic residues from the cultivation and processing of palm oil, most of which is being consumed by the biomass boilers.

Air emissions come primarily from stationary sources: biomass boilers, mixed-fuel boilers (biomass/bunker), the gas turbine, and backup bunker-fired boilers and diesel generators. GJ does not do any in-stack or ambient emissions monitoring of NOx, SOx, particulates or other parameters. However, the new biomass boilers are guaranteed to meet EU emissions standards if they are operated according to the manufacturers specifications. As part of the improved management systems, GJ will monitor particulate emissions for its mixed-fuel boilers and consider monitoring NOx and SOx as well, if the boilers are operating more than 25% of the time on bunker. They will also annually monitor stack emissions on the new biomass boilers to ensure they are operating according to emissions specifications and national and IFC standards.

Water monitoring and treatment systems at GJ plants need to be improved to bring them into compliance with Honduran Law and IFC Standards, especially for the two extraction mills whose effluents empty into internationally recognized protected areas. As part of this effort, GJ will determine what parameters need to be monitored, where, and how frequently. A corporate-level plan will be developed to assess water treatment needs to account for expanded production capacity and new infrastructure, to begin planning for separate treatment of process and runoff waters on those sites where it does not currently exist, and to examine opportunities for increased water-use efficiencies.
Hazardous Materials: Apart from pesticides, a range of hazardous chemicals are employed by GJ companies as raw inputs, catalysts, solvents, acids, and additives, including, most notably, sodium hydroxide (lye for soap making), methanol (a raw ingredient for biodiesel), chlorine gas, aluminum phosphate, and alkyl benzene sulfonic acid (as a microbiocide). GJ will find a substitute and appropriately destroy existing stocks of the refrigerant R-22 which is an ozone depleting hydrochlorofluorocarbon scheduled for gradual phase-out under the Montreal Protocol (to which Honduras is signatory) and also a powerful GHG.

Pesticide Management: Special mixing and washing areas for pesticides and other agrochemicals and protective equipment and special washing facilities (for workers, their equipment and clothes) are provided in some operations. Monitoring of pesticide residues in surface waters that supply surrounding communities is required by SERNA but no data could be obtained during appraisal. GJ will need to monitor pesticide exposure in its workers and pesticide use among Independent Producers. This will be part of a formal Pesticide Management Plan covering the areas of pesticide selection and handling, application and storage, staff training, safety requirements, and disposal, consistent with national laws, IFC standards, and FAO guidance. The Company will immediately suspend the use of all pesticides that are listed in the Stockholm Convention, and properly dispose of any remaining stocks.

Emergency Preparedness: GJ has some emergency related measures in place within each individual company, primarily related to fire response. All facilities have fire hydrants, hoses, extinguishers and other firefighting equipment and regular fire training and inspections. GJ will develop an overarching Emergency Preparedness and Response Plan and ensure that oil storage tanks, including those for hydrocarbons have dykes and that oil spill kits are available at all facilities. Transportation of CPO and other products in tankers is probably one of the greatest emergency risks in GJ’s operations and a vehicle operator safety program will be developed and implemented to manage both the Company owned fleet as well as to monitor transport sub-contractors.

COMMUNITY HEALTH, SAFETY AND SECURITY

Community Health and Safety: Impacts on community health and safety appear to be limited but will be assessed with regard to possible downstream impacts from waste water effluents through the improved water monitoring and treatment systems that the Company will put into place. GJ will develop a grievance system which will also inform the Company as to what kind of complaints are most prevalent in neighboring communities. Currently, grievances are handled on an ad hoc basis through HR. The grievance mechanism will ensure adequate and prompt handling of complaints.

Security Personnel Requirements: The Company employs armed security guards on all their sites, which is common throughout the region. With the exception of the security guards in the distribution network, these guards are hired directly by the Company and are, for the most part, former members of the Honduran military or the police force. According to the Company, they are subject to a rigorous selection procedure, which includes a thorough background check, but this is currently not being documented in a policy or procedure covering both direct employment of security guards or the contracting of security firms. The Company will develop such a security management plan in accordance with good international practice.

LAND ACQUISITION AND INVOLUNTARY RESETTLEMENT

GJ intends to substantially expand its cultivation of African palm to meet increasing demand and lessen its reliance on independent producers. They purchased the San Alejo property and extraction plant from United Fruit Company in 1994 and the lands and plant belonging to CAICESA from Standard Fruit in 1996. Most recently, in 2006, the Company purchased about 1,700 ha of land from Chiquita that was, until that time, devoted to the cultivation of banana. No persons or communities were resettled by GJ or the abovementioned sellers as part of these transactions. The Company also bought several small lots adjacent to their plantations during 2007
In view of future land acquisition, the Company will develop a Land Acquisition Policy and Procedure to establish formal environmental and social guidelines, including a formal grievance mechanism, and thus ensure, among other things, that affected communities, small land owners and squatters are adequately compensated in the unlikely event that the Company decides to engage in such transactions.
This policy on land acquisition and land use will also establish clear rules related to biodiversity conservation and cultural heritage, excluding among other things the acquisition of land in protected areas, with archeological sites, or with indigenous settlements. This policy and procedure will also exclude cultivation in protected areas, wetlands, or the substitution of natural forests for plantations.

BIODIVERSITY CONSERVATION

Both of GJ’s largest plantations—San Alejo and CAICESA—are located near protected areas which are internationally recognized wetlands sites under the 1971 Ramsar Convention. San Alejo is located approximately 8 km from the core zone of Jeannette Kawas National Park, and wastewater from the biogas system drains into the San Alejo River and then to Laguna Dos Micos in that Park. This Park harbors a number of rare, recently described and threatened species as well as great diversity of ecosystem types, including the largest continental coral reefs on the Honduran coast. This Park—which was formerly known as Punta Sal—is managed by the local NGO PROLANSATE. As a condition of its Environmental License, PALSA has submitted a request to the Department of Wildlife and Protected Areas in June 2008 asking for their opinion regarding the location of PALSA’s operations within 8 km of the core zone of Jeanette Kawas N. P. Thus far no response has been provided.

CAICESA is located within 8 km of Cuero y Salado Wildlife Refuge, which is a rich wetland that includes the endangered American crocodile, spectacled caiman, and a small population of manatees. Wastes from the extraction plant in CAICESA drain into the Cuero y Salado Wildlife Refuge by the river of the same name. In order to protect these habitats, the Company will make it a priority to improve their waste water treatment and monitoring systems and undertake mitigation measures as appropriate. It will also include considerations about biodiversity conservation in the land acquisition policy and procedures and proactively seek to cooperate with locally active conservation NGOs to support the management of these two protected areas.

GJ uses kudzu —a vine belonging to the pea family and native to Asia—as a cover crop. Kudzu is a legume and good soil conditioner, but it is extremely invasive in the Southeastern United States and elsewhere. It would be advisable to use other types of cover crops if possible given that numerous alternatives exist.

IFC PROJECTS

RECENTLY DISCLOSED