Dazhou Koyo Fertilizer

Summary of Proposed Investment

This Summary of Proposed Investment is prepared and distributed to the public 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 decision. Board dates are estimates only.

Project number	27445
Company name	Dazhou Koyo Chemical Industry Company, Ltd
Country	China
Sector	Chemicals
Environmental category	B
Department	Oil, Gas, Mining And Chemicals
Status	Pending Approval

Date SPI disclosed	August 25, 2008
Projected board date	September 29, 2008

View Environmental & Social Review Summary (ESRS), click here

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

The proposed project involves the construction and operation of a 400,000 tons per annum (tpa) and 450,000 tpa ammonia/urea complex in Dazhou city, Sichuan, China. Dazhou Koyo Chemical Industry Co., Ltd ( the company or Koyo) is a company engaged in the small scale production of urea and ammonium carbonate. The company is located in Dazhou, 400 km away from Chengdu City, a poor region of China with rich natural gas reserves. This project will use gas as the primary feedstock.

Anticipated development impact of the project

The Capital Expenditure Program will create employment opportunities. It is expected that the project will employ 400 people on a permanent basis, as well as 1000 for the construction. In addition, the proposed project will contribute to the development of the local economy. First, Koyo [plans to rely exclusively on Chinese contractors and construction workers for the implementation of the Project. Second, it will provide much needed fertilizer to a region of China that has been devastated by the earthquake of May 2008. Lastly, the company has an ongoing education program to help local Chinese farmers improve their use of fertilizers, which Koyo plans to enhance as a result of this project.

The key development indicators that are proposed to be monitored during the life of the IFC investment are:

- direct employment levels,
- volume of urea available to the local farmers
- contribution to enhancing local farmer awareness of improved fertilizer usage
- value of construction contracts awarded to local firms.
- use local resource and enhance local economy which is primary agriculture-based

IFC's expected development contribution

FIT WITH THE WBG STRATEGY:
The project fits well with the most recent (2006-2010) World Bank Group Country Partnership Strategy (CPS, report No. 35435 discussed by the Board on May 23, 2006), which is organized around five main pillars that aim to help:

- Integrate China into the world economy by deepening its participation in multilateral economic institutions, reducing internal and external barriers to trade and investment, and contributing to its overseas development efforts;
- Reduce poverty, inequality and social exclusion, through promoting balanced urbanization, sustaining rural livelihoods, and expanding access to basic social and infrastructure services, particularly in the rural areas;
- Manage resources scarcity and environmental challenges, through reducing air pollution, conserving water resources and optimizing energy use, improving land administration and management, and observing international environmental conventions;
- Deepening financial intermediation, by expanding access to financial services(especially among Small and Medium Enterprises), developing the capital markets, managing systematic risks, and maintaining financial stability; and
Improve public and market institutions by improving firm competitiveness, reforming public sector units and rationalizing intergovernmental fiscal relations.
- Within this framework, IFC has a growing role supporting transactions that set standards in areas like corporate governance while creating demonstration effects. IFC’s strategy in China is based on:
- Encouraging the development of China’s local private sector, including small and medium sized enterprises;
- Investing in the financial sector to develop competitive institutions that will meet international corporate governance and operating standards;
- Supporting the development of China’s western and interior provinces; and
- Promoting private investment in the infrastructure, social services and environmental industries.

IFC will make its contribution to the proposed project in the following ways:

Provide a funding source to the private sector in Sichuan for the rebuilding post earthquake:

The earthquake raises tremendous funding demands from those affected by the earthquake. However under limited available funding sources, the private sector has experienced difficulties in obtaining the needed financing. In addition, long-term financing, beyond 5 years, is scarce in China, particularly for private companies. IFC will help Koyo put in place a long-term capital structure to sustain its large capital investments and weather the cyclicality of the fertilizer business.

Benefits to local farmers on better using fertilizers through linkages: IFC’s advisory team will look into helping Koyo to develop a linkage program with the local community to help improve the distribution of fertilizers to farmers.

Environmental & Social: IFC will review Koyo’s environmental and social practices and assist the company in complying with international environmental and social standards.

Environmental and social issues - Category B

IFC's early review of this investment has identified the following environmental, social, health and safety issues: air emission, wastewater treatment and discharge, solid and hazardous waste management, operation hazard and hazardous material management, employee health and safety, fire protection and emergency response, energy efficiency and greenhouse gas emissions, community health/safety, community relationship and development, and land acquisition process.

While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will 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

Based on this early review, it is anticipated that this investment will require 30/ days disclosure by IFC prior to Board and has been provisionally categorized as B.

IFC PROJECTS