Project Name Pending

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	26937
Country	Argentina
Sector	Industrial & Consumer Products
Department	Global Manufacturing & Services
Company name	Company Name Pending
Environmental category	B
Status	Pending Approval

Date ESRS disclosed	April 23, 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’s review was based on the project information provided by the client (the client) relevant to the production sites of a company manufacturing automotive parts (Company Name Pending or the Company) that the client intends to purchase. The client, which is an IFC investee fund, has requested IFC that the proposed transaction be kept confidential, since the client has not yet purchased the company.

IFC reviewed the following due diligence reports prepared by independent consultants:

- Phase I Environmental Due Diligence Assessment reports, dated February 2008, provided for each production site and including information on site setting and operations, environmental aspects, past land use and operations, and key health and safety issues; and
- a Limited Legal and Labor Due Diligence, dated February 2008, including information on plant leases and real estates, permits, labor issues and litigations.

Project description

The client has invited IFC to co-invest in the purchase of a leading auto parts manufacturer. The client’s and IFC’s investment in the company will be made through a special purpose vehicle (the “Holding Company”) which will own, either directly or indirectly, 100% of the company’s shares. The company’s plants are located in industrial areas or in mixed industrial and residential areas. All company sites have been active for at least 10 years and some of them have been industrial facilities for thirty years or more.

The proposed transaction consists of the acquisition of the company from its current owner by the Holding Company. The transaction will be funded through a combination of cash and debt. IFC’s proposed equity investment is up to $12 million.

Key environmental and social issues and mitigation

The client has developed a plan to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, continued to comply with the environmental and social requirements – the host country laws and regulations and the IFC environment and social Performance Standards. The information about how these potential impacts will be addressed is described in the paragraphs that follow.

All the actions will be summarized in a time-bound Environmental and Social Action Plan (ESAP), which will be disclosed as soon as the Client has signed the deal with the Company.

- 1. PS1: Social and Environmental Assessment and Management Systems:

Environmental and Social Assessment:

In addition to municipal permits to operate and permits from the Firefighting Department, all plants hold valid annual environmental certificates granted from the Provincial Environmental Authorities or are in the process of renewing their certificates. The Company has submitted the relevant Environmental Impact Studies and is awaiting said certificates.

Management Systems and Organization:

Three plants have implemented an Environmental Management System (EMS), and obtained ISO 14001 certification. All facilities are certified ISO TS 16949 which provides particular requirements for the application of ISO 9001:2000 for automotive production and relevant service part organizations.

The Holding Company will cause the company to undertake the necessary measures to ensure that an Environmental, Social, Health and Safety (ESHS) Management System is implemented across its operations including the attribution of responsibilities to the appropriate management, and consistent with ISO 14001.

Training:

The company has an established program to provide necessary training for all its direct employees on occupational health and safety aspects related to its operations. The company keeps registers of health and safety training sessions provided to the workers.

The Holding Company will cause the company to complement its training programs for occupational health and safety, adding an environmental component and use best effort to include all its key contractors in the training program. The Holding Company will cause the company to continue to record and report all training performed and trainees.

Monitoring and Reporting:

Environmental and workplace monitoring is conducted for several parameters. As part of its ESHS Management System, the Holding Company will cause the company to develop and implement Environmental and Workplace Monitoring Plans to be consistently applied at all production sites. The Environmental Monitoring Plan and the Workplace Monitoring Plan will be outlined in the ESAP.

In addition, the Holding Company will cause the company to develop a set of procedures to monitor, measure and report on the effectiveness of the ESHS Management System in place.

- 2. PS2: Labor and Working Conditions:

Labor and working conditions:

IFC was provided with the Legal Due Diligence document. This document focuses on company compliance with national labor laws and regulations. The document identifies a number of areas for improvement, which will be outlined in the ESAP. The Holding Company will cause the company to review these areas for improvement and address them to secure continued compliance going forward.

The company is subject to collective bargaining agreements with worker’s organizations. It has an induction program for new staff and a training program for all staff, associated with a capacity matrix which allows programming training. During the induction program, new staff is made aware of the company’s objectives, clients, quality assurance and control system, working hours, health and safety, confidentiality, and communication procedures. An internal communication procedure is available and promotes communications from staff to management. The Holding Company will cause the company to develop a broader human resource management system and its relation to legal requirements for labor management and working conditions which will include issues pertaining to fair treatment, non-discrimination and equal opportunity; terms of employment; discipline, dismissal, etc..

Occupational health and safety (OHS):

Although during the due diligence some areas for improvement were identified:

- Health and safety management services are contracted to third party professionals;
- Medical services are available according to national requirements;
- Personal protective equipment (PPE) was found to be consistently provided,
- Accidents are reportedly duly registered and an accident investigation procedure is available; and
- Material Safety Data Sheets (MSDS) are generally maintained and available.

A risk analysis of different workstations was conducted in two plants and a thermal load assessment at the SMC press, the injection machine and the paint process areas, was recommended. Emergency and Evacuation Plans were generally available at the facilities. The due diligence identified several housekeeping deficiencies (e.g., small spills, loose and/or exposed electrical cables, lack of labeling, unsecured gas cylinders) at the facilities. The Holding Company will cause the company to review these areas for improvement and address them to secure compliance going forward.

The Holding Company will cause the company to undertake OHS risk assessment, when appropriate, and should follow up with corrective actions as shown necessary. In particular, the conditions and eventual need of guard rails will be reviewed. Spill control and response measures will be reviewed. Conditions of electrical cables and equipment will be analyzed. The assessment will review the adequacy of ventilation in all plants. A study of the thermal loads at the different workplaces will be conducted at all plants. Results of hydraulic tests and measurements of wall thickness of pressurized vessels across facilities will be provided. The Holding Company will cause the company to develop necessary corrective actions, if any, to ensure consistent implementation of engineering controls and good practice throughout the facilities.

Life and fire safety:

The company generally demonstrates a professional approach to fire safety management, for example, fire load studies have been conducted and all plants have fire extinguishers, wheeled foam extinguishers, and fire alarms, and most plants have fire hydrants. However, during the due diligence some areas for improvement were identified.

The Holding Company will cause the company to implement a consistent approach with respect to fire safety and that all requirements made by the local authorities and applicable to the existing facilities are met.

- 3. PS3: Pollution Prevention and Abatement:

The main processes carried out at the company’s plants include injection moulding, pressing, cleaning, painting of plastic pieces, production of polyurethane foams, metal cutting and welding, fabric cutting and sewing, and assembly.

Pollution prevention, resource conservation, energy efficiency:

Electric power and natural gas are provided by the local utility companies. Process vents, stand-by generators, boilers, steam generators and compressors are the main air emission sources of the plants. Air emission monitoring for fine particulate matter (PM10) and volatile organic compounds (VOC) was conducted at some stacks/vents of some facilities, but not all potential sources. When the company monitored emissions from boilers, the results were reportedly in compliance with local regulations. The Holding Company will cause the company to ensure that stack emission and vent emission monitoring is consistently performed across operations.

Process wastewater is treated on site through close loop wastewater treatment plants. Sludge is hazardous waste and periodically collected and disposed of as such. Sanitary wastewater is collected and treated on site, and discharged either through infiltration pits or into local sewers. The Holding Company will cause the company to ensure that sludge produced at their industrial wastewater treatment plants is regularly tested before disposal, and that all sanitary wastewater effluents are tested before discharge.

Noise levels at the facility boundaries were monitored at all facilities except one. Where measurements were conducted, they were reported in compliance. The Holding Company will cause the company to include noise monitoring as a component of the ESAP.

As part of the transaction documents, the client has agreed with the company to undertake a Phase II Environmental Due Diligence to ensure that subsurface soil and groundwater have not been impacted by past and current operations and if necessary undertake the required remediation.

Hazardous and non-hazardous waste management:

The company has been working on implementing a waste management program. A waste segregation program is in place and hazardous waste and non-hazardous waste are reportedly adequately segregated. Hazardous waste is disposed of at offsite licensed facilities and non-hazardous waste recycling is implemented. Some areas of improvement were found in terms of labeling of hazardous waste containers, segregation of waste, and lack of secondary containment at hazardous waste storage areas. The Holding Company will cause the company to review these areas for improvement and address them to secure compliance going forward

Although disposal manifests are collected, the waste disposal and recycling companies have not been audited by the company. The Holding Company will cause the company to implement a consistent monitoring process of its waste disposal contractors.

Hazardous Materials:

The Holding Company will cause the company to ensure that:

- adequate storage is available and capacity is not exceeded at any time;
- explosion-proof electrical components are installed wherever indicated through risk assessment;
- secondary containments are provided to all flammable substance storage rooms;
- container labeling is adequate and compliant with norms; and
- spill response kits are available at all chemical storage areas.

Equipment potentially associated with polychlorinated biphenyls (PCBs) are present at the facilities. The Holding Company will cause the company to test the equipment potentially associated with PCB and ensure that no PCB is present at their facilities.

The facilities do not use ozone-depleting substances (ODSs) in their manufacturing process. However, all facilities are equipped with air conditioning units and chillers. The Holding Company will cause the company to assess any presence of materials scheduled to be phased out according to the Montreal Protocol and insure going forward that the refrigerant systems in their facilities do not use CFCs.

Emergency preparedness and response: Emergency and Evacuation Plans are generally available at the facilities, considering fire, smoke, spill or personnel accident scenarios. The Emergency and Evacuation Plans will be reviewed and necessary revisions, if any, to these plans will be recommended.

- PS4 Community Health, Safety and Security:

Issues in this industry include fire safety and emergency preparedness and response, transport and security.

As indicated under PS2, fire load studies are available and/or corrective action plans in place to ensure compliance with local authority requirements. The Holding Company will cause the company to ensure that scenarios potentially involving areas outside plant boundaries are fully developed and integrated in the emergency plans, and that the emergency preparedness and response measures are adequate to prevent fire propagation to outside receptors.

The Holding Company will cause the company to use its best efforts to ensure that the security providers adopt an appropriate code of conduct toward workers and the local communities.

IFC PROJECTS