Riopaila

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	27549
Company name	Riopaila Castilla SA
Country	Colombia
Sector	Agriculture and Forestry
Environmental category	B
Department	Agribusiness
Status	Pending Disbursement

Date SPI disclosed	April 7, 2009
Projected board date	May 11, 2009
Previous Events	Signed: June 26, 2009 Approved: June 25, 2009

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

Overview

Sponsor/Cost/Location

Development Impact

Contacts

Attachments

Project description

Riopaila Castilla S.A. (“Riopaila” or the “Company”), is Colombia’s largest sugar producer with about 20% of the country’s total production. The company owns and operates two mills with a combined installed sugarcane crushing capacity in excess of 4 million metric tons per year.

Riopaila has approached IFC with a request for a corporate facility (the “Facility”) in the amount of $30 million. The Facility will help Riopaila implement its 2009-2013 capital expenditure program aimed at expanding crushing capacity, increasing production efficiencies, modernizing cane farming equipment and machinery and refinancing short term debt.

Anticipated development impact of the project

The proposed project is for a corporate investment program designed to reduce costs and improve efficiencies by modernizing equipment and machinery across units and restructuring short-and medium-term debt. The primary beneficiaries of the project will be its financiers (through higher incomes) and the government (through increased taxes).

There are specific developmental impacts associated with the facility, which are summarized below:

Employment:
Riopaila's improved performance will safeguard employment opportunities in rural areas, in particular in the Cauca Valley region.
Farmers linkages:
The Company sources the majority of its sugar cane from cane farms owned by shareholders and third parties. Riopaila's improved performance will strengthen the financial sustainability of these farms while protecting employment.
SMEs reached:
The company has a major impact on the economic activity through its extensive linkages to SMEs. It maintains contracts with 36 Associated Work Cooperatives, 2 enterprises to run agricultural equipment and processing equipment, 2 other enterprises for crop spraying, 11 transport enterprises and it maintains a network of over 300 wholesalers which in turn service about 260,000 retail shops.

Community contributions:
Riopaila, through Caicedo-Gonzalez foundation, is a major contributor to the social development of the areas where it operates as it provides much needed basic infrastructure and supports the education system and early stimulation programs in rural areas.

Corporate Governance:
The Company is keen in enhancing Corporate Governance thus promoting transparent and accountable enterprise standards.

IFC's expected development contribution

IFC is expected to play a critical role and contribute positively to the project by:

Environmental, safety and social standards:
IFC will assist Riopaila in improving best environmental and social practices across its operations by applying IFC’s performance standards.

Clean Production:
IFC will explore possibilities with the company to enhance a Clean Production Program to improve energy efficiency usage.

Corporate Governance:
IFC has offered to help the company in reviewing the Corporate Governance assessment studies/improvement programs being conducted by ICESI University. The Team provided Riopaila’s management with the IFC Family Business Governance Handbook which was welcome.

Stamp of approval and catalyst for Mobilization of Institutional Investors:
IFC’s structuring and agribusiness expertise would serve to mobilize investment from Colombian institutional investors, while deepening the local capital markets, should the company issue a Corporate Bond, currently under consideration.

Environmental and social issues - Category B

For this Category B project IFC evaluated technical, environmental, labor, occupational health and safety information provided by the client, and conducted a field visit. Overall management and continuous improvement of environmental and social affairs is assured through the institutionalization of several, certified management systems. IFC obtained adequate information through the appraisal mission to better understand a labor strike in the 3rd quarter of 2008. Occupational health and safety programs will be strengthened as part of the investment. Riopaila Castilla’s two sugar mills generate electric power from biomass resulting from cane processing and sell excess power to the national grid; part of this investment will facilitate an increase in the amount of electric energy sold to the national grid and a reduction of particulate in air emissions. Other wastes and byproducts generated in sugar cane processing are utilized beneficially for agriculture. Riopaila Castilla employs biological controls for pests of economic significance and thereby avoids the use of chemical pesticides. Riopaila Castilla adheres to stringent guidelines for cane field burning in the Consensus Agreement for Clean Production in the Sugar Sector to reduce potential impacts to neighboring communities. Riopaila Castilla cane cultivation activities use water that from public irrigation channels and deep wells; process wastewater is treated in the effluent treatment system and reused 100% for cane washing and cane field irrigation. Moreover, the company has adopted efficient irrigation systems for optimum use of water. Riopaila Castilla is active in management and restoration of local hydrographic basins. Activities include reforestation, water resources management, educational workshops in soil and natural resources management; creation of fishing, farm and game bird micro enterprises; and, local training to generate economic recovery in the in local river basins.

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