City Express

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	26214
Country	Mexico
Sector	Accommodation & Tourism Services
Department	Global Manufacturing & Services
Company name	Hoteles City Express, S.A.P.I. de C.V.
Environmental category	B
Status	Pending Disbursement

Date ESRS disclosed	April 1, 2009

Previous Events	Signed: June 9, 2009 Approved: May 14, 2009

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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 meetings with the management team of Hoteles City Express (“City Express”) and site visits to five operating hotels: City express Toluca, City Suits Toluca, City junior Toluca, City express Teatro de los Insurgentes, and City express Reforma El Angel. The hotels visited are representative of the range and type of hotels the company owns and operates. Environmental and social conditions during planning, construction and operation of the hotels were assessed through documentation review, interviews with the sponsor, and information submitted by City Express. The main aspects evaluated included land acquisition; planning and permitting of new hotels; life and fire safety management; use of energy and water; solid waste management; supply of potable water; and labor and working conditions.

Project description

City Express (the “Company”) is a hotel chain operating business hotels in Mexico. Currently City Express has 39 business hotels (4,041 rooms) for the middle and middle-low income markets. The company plans to expand its operations to 11 additional new hotels in 2009. IFC’s investment (the “Project”) will support 5 new hotels which will be 100% owned by the Company and the refinancing of the existing City express Teatro de los Insurgentes hotel. The proposed new hotels are four City express hotels to be located in Merida, Minatitlan, Los Cabos, and Ciudad Obregon; and one City junior in Ciudad Juarez.

The company develops three types of hotels: City junior, City express and City Suits. The development and operation of the hotels are quite standard and therefore the potential impacts and management capacity is similar across all the developments.

Key environmental and social issues and mitigation

City Express has presented information on its current practices and policies that seek to address the potential impacts and to ensure that the proposed project will comply with the environmental and social requirements upon implementation of the specific agreed measures. The social and environmental requirements are the Mexican laws and regulations, IFC’s Performance Standards, and the applicable IFC’s environmental, health and safety guidelines. The information about how these potential impacts will be addressed by City Express is summarized in the paragraphs that follow. Additional actions are summarized in the attached Environmental and Social Action Plan (ESAP).

The potential impacts of the project are assessed based on the evaluation of previous developments and management of the current operations as well as the documentation available on the proposed five hotels. The land where the five hotels will be located has been acquired and preliminary designs have been drafted, however no construction has been initiated at the date of the present review. City Express will submit the environmental licenses and studies (if required by law) of the new hotels to IFC as soon as they are available.

Social and Environmental Assessment and Management System

Social and Environmental Assessment and Management Program
At the starting of each project, City Express identifies the legal requirements and obtains the applicable licenses. The company customarily locates the hotels close to industrial areas, where economy is well diversified and usually in urban areas. When an Environmental Impact Assessment (EIA) is required by the local authorities, City Express commissions the study. Previous to the development of a project City Express obtains the authorization to use of the soil and the construction license or any other required authorization according to the site-specific regulations. The company implements the recommended measures derived from the Environmental Impact Assessment studies and licensees. In case that legal requirements do not include EIA studies, the company will use Environmental and Social best practices in the development, according to City Express’ policies and the elements defined in IFC’s Performance Standard 1.

The design of a new hotel considers technical and environmental specifications, for example, seismic conditions, life and fire safety, efficient use of water and energy, and waste water treatment needs. The construction of the hotels is contracted with specialized construction companies and City Express assigns an internal Project Manager, who supervises and ensures compliance with technical and social requisites. In the operating hotels the Local Manager at each hotel ensures the proper operation of the hotel including human resources issues and relations with local authorities. The company, at corporate level, has maintenance agreements with specific contractors in elements such as fire safety systems and emergency generators. City Express will implement an Environmental Management System consistent with ISO 14001 or an equivalent international standard.

City Express has registered ten operating hotels and four new ones under the ‘U.S. Green Building Council” (USGBC) and are expected to be certified under LEED (Leadership in Energy and Environmental Design). The company has identified, and is implementing measures to achieve such certification and applies the same principles to all new hotels. Some of the measures include the use of LEED certified materials, separation of storm water and sanitary water, plantation of shade trees, installation of water and energy saving devices, and selection of high efficient equipment (HVAC, boilers, pumps, etc).

Organizational Capacity

City Express has developed a strong technical and financial team that oversights the company. Under the Chief Executive Officer 4 directors coordinate the activities of the company. Environmental and Social issues are the responsibility of the Chief Development Officer who coordinates the design and construction of new hotels; and to the Chief Operating Officer who ensure operations including human resources, maintenance and administration on each hotel. The company will define explicit responsibilities regarding environmental and social issues and will assign a responsible manager/director who will be the overall responsible for environmental elements in the development and operations of the hotels.

Training
The company has implemented an on-line/practical induction program for all the employees. Given the number of employees (around 1,014) and the national coverage of the hotels, the company relays on an e-tool and the general manager at each hotel to provide the training. The e-training has six modules: Reception, Housekeeper, Accounting, Sales, Maintenance and Management. All the modules have an induction section which includes the basic elements of the company (vision, mission, services, etc), as well as emergency response. There is long term training for (potential) managers which is aimed to strength managerial skills, including human resources. The training program defines what modules an employee should have. The e-learning system has more than 544 users in 34 hotels. It is considered a cost-effective tool for the company, since it depends on computer availability, which most hotels have. With the expansion of the workforce, training will become an important element to be monitored by City Express. A selected City Express hotel is used as a training center for hospitality students. Training was provided at head quarters regarding recycling, but other than that not training on Environmental or Occupational health was identified. The company will include training in environmental elements according to the defined roles and will reinforce the emergency response training.

Monitoring and Reporting
During the development of the new hotels, City Express keeps records documenting the construction process and the actions implemented as part of the license processes. During operation, however, environmental monitoring and reporting is not clearly defined and recent records such as of water quality, fire drills, and extinguisher inspections were not always available for review.. The company will define data monitoring and reporting requirements consistent with the objectives of the environmental and social management systems at each property.

Labor and Working Conditions

Human Resource Policy, Management, Working Conditions and Grievance Mechanism
City Express has a central team in charge of Human Resources, with a Human Resources Manager, a coordinator, and a recruiter; the team is in charge of strategic human resources management. At hotel level, human resources are coordinated by the local manager with support of the accounting area regarding contractual conditions. City Express has decided to operate each hotel as an independent legally formed enterprise. Therefore, the employees at the hotel level are contracted with that enterprise or service company. Although the contract is with each company, the policies and procedures are the same for all the hotels.

The company has a set of internal rules, working agreements with the employees and with the worker’s organizations in place. Such conditions are communicated to each employee and are in accordance with Mexican laws. However, there is not a formal Human Resources policy that addresses IFC’s requirements or formal grievance mechanisms, City Express will define and implement a Human Resources Policy and grievance mechanisms for all the employees. The company identifies talented individuals, trains them and promotes them. With the current expansion of the company, employees with demonstrated skills are offered promotions.

Worker’s Organizations
As mentioned previously, City Express operates each hotel as an independent service enterprise, each enterprise has agreed with a worker’s organization on working conditions, through the signature of a collective agreement. Most employees at each hotel belong to the union, only those considered as administrative personnel do not belong to it. City Express has relations with near 13 different worker’s organization. In the range of worker’s organization, City Express has relations with independent unions as well as with unions affiliated to bigger associations such as the Confederaci�n de Trabajadores de M�xico (CTM), Confederaci�n Mexicana Sindical (CMS) or Confederaci�n Revolucionaria de Obreros y Campesinos (CROC).

Workers are represented by one employee at each hotel, a collective agreement is signed between the parties and those employees belonging to the union are covered by such agreement. When an employee is hired, he/she automatically joins the union of the hotel if its position is not an administrative one. City Express will ensure that employees have the right to join worker’s organization of their choosing and will open the communication channels with the employees and union members regarding membership and fairly representation of the workers.

Non-Discrimination, Equal Opportunities and Protection of the Workforce
City Express applies the principles of Non-Discrimination and Equal Opportunity, reflected on the diverse workforce; however, there is not a formal written policy. Working conditions comply with local regulations regarding salaries, benefits and age of work, no employees under18 years are contracted as required by the Mexican Law and collective agreements. No child labor or forced labor is used by the company. During the construction phase, City Express supervises and ensures that the construction firms comply with labor laws and pay the employees the legal requirements. The company will make explicit non-discrimination elements in its human resources policy.

Retrenchment
The current number of employees of City Express is 1,014, from which 848 employees work directly at the hotels and 166 at corporate level. 61% of the workers are women. The company has been expanding the number of employees with the new openings and is expected to create 440 direct jobs and 1,950 indirect jobs (related to construction) in 2009 years. In addition to the 440 directs permanent jobs, City express will generate approximately 1,760 indirect permanent jobs once the hotels are operating, these permanent indirect jobs result from workers associated to the hospitality and service industry (restaurants, laundry services, transportation, for example). Retrenchment is not expected in these projects and overall City Express has attained a very low rotation rate (8%).

Occupational Health and Safety
Occupational Health and Safety (OHS) issues during construction are supervised by the assigned Project Manager who ensures that the contracted company complies with technical and administrative requirements. City Express does not have formal recording of OHS accidents or incidents, though it was reported that accidents are very infrequent. The hotels do not have kitchens and just some of them have laundry rooms, therefore occupational health and safety risk is low. City Express will implement an Occupational Health and Safety Management System to ensure risks during construction and operation of the hotels are identified, monitored and controlled.

Pollution Prevention and Abatement

Air Emissions
Emissions to air from the hotels are mainly from small boilers used to provide hot water to the hotels and from the electricity generators used as backup, which are used on rare occasions. Boilers and generators are small and below the size threshold above which IFC requires emission monitoring. The Company generates its own electricity to operate one of the current operating hotels in Mexico City. Generators used to produce the electricity are small and operated under clean technologies, according to local requirements. City Express is not required to monitor air emissions from these generators. Greenhouse gas emissions from this project are minimal and are derived from the use of electricity and heating of the water.

Effluent Management
Operating hotels are mostly located in urban or industrial areas, where sewage system is available and effluents are discharged to the sewage and the municipality for treatment. Liquid effluents are mostly domestic, given that the hotels do not have kitchens or additional facilities. At some of the new planned developments such as Merida, where the municipality does not have a sewage treatment facility; City Express has included in the design a Wastewater treatment plant. City Express will submit wastewater analysis of the effluents for this hotel and those with treatment once the hotels are in operation.

The company has initiated the separation of storm water from sanitary water in the new hotels and is planning to use of the storm water for irrigation or injection into the soil. This will reduce the amount of discharged water.

Energy Efficiency, Water use and Resource Conservation,
City Express operates its hotels under a strict cost control and that include the use of utilities and natural resources. Resource conservation has been included at the design stage and is implemented during the construction and operation of the hotels. The company has installed in all the hotels saving mechanism including low flow faucets and toilets, energy saving bulbs, high efficient boilers and generators, insulation of pipes when required, double glass windows within other measures. Design is aligned with the goal of achieving the Leadership in Energy and Environmental Design (LEED) accreditation.

Under the LEED initiative, City Express has initiated the selection of suppliers with a demonstrated environmental commitment. Companies certified with ISO 14001 or LEED suppliers are preferred. For example carpets and doors of the new hotels have been supplied by LEED accredited suppliers. The company has records on such suppliers.

The company is and will continue exploring opportunities to reduce its resource consumption, including potential reuse of water from the laundry and storm water. City Express will benchmark its consumption among its hotels and the hotel industry in general.

Solid Waste Management
City Express is starting a recycling program at corporate level, an initial training on the topic was conducted in the head quarters of the company, a committee has been formed and recycling bins installed. The company will implement a comprehensive solid waste management program applicable to all the hotels. The program will focus on reduction of waste generated and will aim to segregate wastes, reuse and recycle the generated waste. Local context and market for the products will be considered in the strategy.

Hazardous wastes are not to be expected from the hotel operations, some oils might be generated from maintenance but not expected to be significant.

Community Health, Safety and Security

City Express has considered life and fire safety systems, seismic resistant structures and potable water sources during the design and construction of the hotels. The company acquires the required licenses for construction and opening of the hotels, which includes the technical evaluation of the proposed construction (seismic and structural elements) and compliance with local and Mexican codes. City Express has a complete team of engineers and architects to ensure proper design and construction of the properties according to the specifications

Life and Fire Safety and Emergency Preparedness and Response
All the hotels have Fire Safety Systems in place, which includes the presence of sprinklers, smoke detectors, a central alarm system and compartmentalization. The doors in all the rooms are 30 to 90 Minute Fire-Rated Doors according to the fire risk. In 2007 City Express commissioned a study to verify compliance with the Spanish legislation regarding fire safety (Real decreto 314/2006: c�digo t�cnico de la edificaci�n, including “seguridad en caso de Incendio”) for the hotel Junior Toluca. The report concludes that the design and equipment is in compliance with Spanish requirements. The company applies the same specifications through all the hotels. During the appraisal Life Fire and Safety systems and equipment were observed on all the visited hotels. The company has maintenance contracts to verify operations of the systems, maintain water reservoirs and has evacuation plans.

City Express will perform periodic fire drills and inspection to all fire equipment including extinguishers. The company will train the relevant employees and verify the capacity of all the hotels to respond in case of an emergency, including coordination with external emergency response teams.

Potable and Hot Water
Potable water is available in all the hotels, depending on the location and quality of the municipal water, City Express treats the water previously to distribute it to the rooms. Potable water is monitored for basic parameters such as pH and hardness; however the company will implement a periodic and systematic monitoring system to guarantee appropriate water quality.

Hot water is stored above 50 �C in all the hotels, the company has identified mechanisms to collect and recover condensates and use hot gases from some equipments to preheat the water.

Land Acquisition

All the land acquired by the company has been done through market transactions in a willing to sell-willing to buy basis. Therefore, no displacement or compensation of people has been required. City Express usually develops its projects in urban areas and where the use of land has been authorized by local authorities for hotels or commercial activities. The company will avoid the use of land where communities would be displaced.

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