Cemar-Maranhao

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	26370
Country	Brazil
Sector	Utilities
Department	Infrastructure
Company name	Companhia Energetica do Maranhao
Environmental category	B
Status	Active

Date ESRS disclosed	October 26, 2007

Previous Events	Invested: February 28, 2008 Signed: February 1, 2008 Approved: November 29, 2007

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 reviewed a series of documents, including:

Miscellaneous information describing the company’s environmental, health, and safety (EHS) management systems as well as corporate social responsibility programs, including:

- Occupational Safety and Health Policy;
- Ergonomic Safety Analysis Report, 2005;
- Contractor Safety Audit Report, 2006;
- Health and Safety Risk Prevention Program Report (PPRA or Industrial Hygiene Survey), 2006;
- Occupational Health Control Program (PCMSO or Medical Surveillance Program), 2007;
- Employee Conduct Manual;
- Employee Benefits Manual;
- Collective Labor Agreement (Cemar/STIU – MA) 2006/2007;
- “Plugada” Children’s Playbook with safety messages for community and in-home safety (distributed in low-income areas with new electric service);
- Risk Prevention Tips (pamphlet distributed to communities to prevent accidents from contact with electric lines and electricity in the home).

IFC conducted visual inspections of a representative sample of company assets and project activities including low income rural area electrification projects under construction, client service and operations centers, and the central maintenance facility. IFC also interviewed key management staff involved in Cemar’s corporate environmental and social management.

Project description

Companhia Energética do Maranhão (Cemar or the company) distributes electricity in the state of Maranhão which has a population of 6.2 million and is one of the poorest states in Brazil. The company currently serves 1.4 million customers in a 333,366 km2 concession area.

During 2007-2009, the company will implement an Investment Plan whose primary objectives are to:

- modernize and expand the company’s distribution network to connect new customers and meet rapid energy demand growth;
- improve the reliability and quality of electricity served; and
- enhance operational efficiency, through energy losses reduction, IT system upgrades, work facilities consolidation and energy efficiency initiatives.

Identified applicable performance standards

While all Performance Standards (PS) are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:

The following five (5) Performance Standards apply to the Cemar project:

- PS1: Social and Environmental Assessment and Management Systems;
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health and Safety
- PS6: Biodiversity Conservation and Sustainable Natural Resource Management

The company’s policy is to acquire properties or establish right-of-ways through direct negotiations with the landowners. The company makes offers to the landowners based on the market value of the land and the company can and often does pay above market value. Where the company cannot reach agreements with landowners or illegal squatters in ROWs, the cases are referred to government authorities for resolution according to Brazilian legislation. Cemar is not planning or implementing any resettlement activities at the present time. If resettlement is necessary in the future, Cemar is committed to implementation according to Brazilian legislation and the requirements of PS5, which will be incorporated in the company’s EMS.

The company only implements electrification projects in indigenous lands at the request of the National Foundation for Indians (FUNAI) in order to provide a basic infrastructure need. There are currently 16 land areas within the state of Maranhão which are either registered or otherwise identified as indigenous lands. Some of these areas are currently serviced by a government-subsidized electrification project for low-income, rural areas known as the Light for All (Programa Luz para Todos or PLPT) program while others are slated for inclusion in the PLPT. There is currently no sub-transmission infrastructure located in indigenous lands and none is planned at the present time. Procedures for the installation and connection of electric service to indigenous villages is established by the National Agency for Electric Energy (ANEEL, which regulates the private concessions for electric utilities in Brazil) and follow the same rules and requirements for the provision of electricity distribution service applicable to the rest of the population of Brazil. In the eventuality of a need for future construction of sub-transmission lines in areas designated as indigenous lands, the company would follow applicable environmental permitting requirements, disclosing information on the impacts of such projects to those communities and consulting with them prior to project implementation, and comply with the requirements of PS7, which will be incorporated in the company’s EMS.

The environmental permitting process of the State of Sao Paulo requires the verification of the existence of cultural heritage resources classified by applicable federal regulations. Cemar has procedures in place to comply with requirements applicable to chance finds during construction activities, including preparation of detailed archeological resource monitoring and rescue plans implemented under the supervision of nationally accredited experts. To date, Cemar has not encountered the need to implement such programs.

Environmental and social categorization and rationale

This is a Category B project because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. A mature, established, operating company, Cemar has a proven track record of effective management of environmental and social impacts from its projects in compliance with applicable regulations at the Brazilian Federal and State levels. Cemar devotes adequate financial and human resources to its environmental and social management programs effectively mitigating potential impacts from on-going operations.

Key environmental and social issues and mitigation

- EHS Assessment and Management Systems

- Environmental and Social Assessment:

In the development of all new projects, Cemar undertakes environmental and social assessment of the aspects and impacts, both negative and positive, in the project’s zone of influence according to the regulatory requirements of the State of Maranhao and national Brazilian regulations. The environmental and social assessment cycle begins at the earliest stage of the project planning effort, that is, during field surveys and pre-feasibility studies, where technically and financially feasible alternatives are examined. This process considers applicable legal requirements of the various authorities and jurisdictions in which the project will be constructed and operated, which, due to the capacity of power transmission and distribution of the company is limited to state and municipal requirements. The company often relies on external consultant experts to conduct assessment which trigger the application of federal regulatory requirements such as may be the case during construction of sub-transmission or distribution lines in legally protected lands.

- Management Program:

Cemar’s published Mission, Vision, and Values statement highlights the company’s concern for the environment and the communities in which it operates. The company’s social and environmental commitment is further manifested through the recent organization and implementation of environmental and social management programs which focus on key operational areas including:

- occupational health and safety of its workers and contractors;
- prevention of risks to the public from with the presence of electric distribution infrastructure in the community;
- social responsibility and the safe and efficient use of electricity in the household;
- protection of natural resources; and
- compliance with applicable regulations.

Cemar identifies actions to prevent and control the impacts based on the results of environmental and social impact assessments and based on the results of internal audits. Programs are structured to primarily to manage construction impacts and normal operations. Quantitative indicators have been established for some of these programs to more accurately determine performance. For example, occupational and public safety indicators are closely followed and compared against benchmarks of other Brazilian electricity distribution companies. Included in the programs are a series of policies and guidelines primarily oriented to toward worker health and safety, the issues of greatest relevance to the operation of the company and its subcontractors.

- Organization, Training and Monitoring:

Overall responsibility and authority for implementation of Cemar’s environmental and social policies and programs lies with the corporate human resources department. Led by its director, the department includes a group of full-time qualified environmental and safety professionals who include a coordinator and eight (8) safety technicians supported by a labor doctor, all of whom are assigned primary responsibilities in specific areas such as licensing, audits and inspections. Due to the rapid growth of a government-subsidized rural electrification program (called the Light for All Program), Cemar has increased the number of its own staff and the number of construction subcontractors dedicated to this program. An additional dedicated group of approximately five (5) full-time qualified environmental and safety professionals are currently assigned to this particular program and, like their main operations counterparts, are included in every new project development team and assigned the responsibility for overseeing environmental and social assessment and management activities.

Cemar has a training program targeting the safety of employees and subcontractors involved in construction and maintenance of its sub-transmission and distribution network. Training programs cover a number of key areas including:

- electric safety for new installations;
- organization of health and safety committees;
- defensive driving; first aid;
- fire safety;
- rescue in heights;
- workplace norms and procedures.

Employees and subcontractors are also trained in a training facility in understanding workplace risks and their prevention and control (mainly electrical hazards and working in heights), including the use of personal protective equipment (PPE), hazardous materials handling, and emergency response.

Performance is currently monitored through periodic internal audits of its own operations and of its contractors. The auditing program focuses on the identification of any necessary corrective actions. Cemar specifically monitors health and safety performance indicators including accidents and fatalities rates of employees, sub-contractors, and the public and strives to improve its performance on a yearly basis. Cemar also conducts industrial hygiene assessments on an annual basis as required by Brazilian law and has instituted the government required joint health and safety committees (CIPA) with representatives from the workers and management who supervise and report on health and safety issues encountered during work.

- Reporting:

The results of the internal and contractor audit program, worker health assessments, and CIPA meetings are periodically reported to management, principally within the human resources and legal departments who are assigned the principal responsibility for performance in environmental, health, and safety issues.

- Labor Issues

- Working Conditions and Management of Worker Relationships:

The company has a well developed human resources management program which supports workers’ rights to collective bargaining, freedom of association and other basic rights. The company is in the process of formalizing a human resource policy and a grievance mechanism that will ensure a transparent and confidential treatment of employee concerns. Employees are currently able to raise concerns through worker union representatives or through the public Labor Rights system (Justica de Trabalho).

Cemar provides new employees with induction training that includes instruction in job-specific tasks, occupational health and safety requirements, and company rules and procedures. The company rules and worker benefits at Cemar are communicated through the Collective Labor Agreement (signed between Cemar and the STIU – MA (Sindicato dos Urbanitarios) valid for the 2006/2007 period) that outlines the basic terms and conditions of employment, including working days and hours, safety procedures, disciplinary procedures, leave, benefits and termination of employment. The company Employee Conduct Manual complements the employee handbook. The Employee Conduct Manual outlines a number of issues applicable to management and line workers including the company mission and values, general behavior standards, the company’s definition of conflict of interest, rules for external communication, and protection of the confidential information, among others. Workers are required to sign individual employment contracts which further define worker roles and responsibilities and which explains worker compensation and payment procedure ensuring workers are paid regularly and on time. Cemar further communicates worker benefits through the Employee Benefits Manual which outlines health insurance and other enhanced employment benefits.

Approximately 60% of the workforce employed by Cemar in construction, operation and maintenance activities is subcontracted through a network of over 60 companies. The majority of the subcontracted resources are dedicated to a program sponsored by the federal government to extend electric service to poor and rural communities known as the Light for All Program (Programa Luz para Todos or PLPT). The growth of the PLPT program is driving Cemar to develop a comprehensive contractor management system which evaluates and monitors the environmental, health and safety performance of contracted companies. Contractor management already includes legal specifications in contracts and inclusion of past performance on environmental, health, and safety issues in the contractor selection and/or contract renewal process.

Cemar complies with Brazilian national law which requires employers to recognize workers rights to organize in an organization of their choosing and without interference. Cemar supports employees’ rights to freedom of association and collective bargaining in compliance with Brazilian law; about 50% of employees and contractors are members of the STIU, the principal union which represents the interests of electric utility workers in the State of Maranhao and elsewhere in Northeastern Brazil. The STIU represents all employees (members and non-members) in the negotiation of the collective bargaining agreement.

Cemar’s current operations take place in mostly rural areas where skilled labor is scarce. Cemar encourages its subcontractors to hire local labor to the extent feasible in order to minimize the need for travel for construction and maintenance crews and supports them with a subcontractor training program. Cemar relies on its own adds and on employment services firm for the pre-selection of potential candidates based on education, technical training, and experience. Cemar applies non-discriminatory practices in its employee and contractor selection process.

- Occupational Health and Safety:

The company tracks total accident frequency rates as well as accident severity rates (the severity rates include a measure of lost work days) of its workers and contractors. The company’s accident frequency and severity rates have remained relatively steady or declined over the last three years and are among the lowest when compared among Brazilian electricity companies. Contractor accident frequency rates have also experienced a decline over the last three years and are amongst the lowest when compared among Brazilian electricity companies’ contractors. However, contractor accident severity rates increased between 2005 and 2006, with total contractor fatalities of 7 in 2006 vs. 1 in 2005 and 2 in 2004. This abrupt increase could be attributed to numerous factors which may include the sharp increase in demand for contractors due to rapid growth of the PLPT electrification program, the lack of a qualified labor force in the state of Maranhão, and the need for improved training of this workforce.

The company is working to further improve its contractor safety training programs. It has recently hired an additional safety specialist within the PLPT program who will be dedicated to develop and implement a contractor safety monitoring and auditing program, including additional training of Cemar’s construction site supervisors.

- Emissions, Effluents and Waste:

Key environmental issues during construction of sub-transmission and distribution lines may include dust, noise, and vibration from construction vehicle transit and earth moving activities as well as potential for soil erosion as is common to all construction sites. These impacts are expected to be temporary and are managed based on the recommendations of the project-specific environmental impact assessment and based on established environmental management procedures.

- Hazardous Materials and Wastes Management:

The company is effectively managing emissions, effluents and wastes associated with its operations. Principal activities include the return of potentially hazardous wastes to the original product manufacturers including such wastes as old mercury lamps, alkaline and acid base batteries, and used tires from the company fleet. The company has historically generated insulating oils contaminated with polychlorinated byphenyls (PCBs), a persistent organic pollutant regulated under international conventions. The company indicates that PCBs were mainly present in a few high-potency transformers which have been removed from substations since 2001 and the transformers and contents sent to an approved specialized incinerator. The company contracts the services of RHEDE, a transformer manufacturer and refurbisher located in the state of Goias to refurbish or replace all of the transformers removed from service throughout the distribution network. Since 1981, Brazilian law has banned the use of PCBs in new equipment. Cemar will prepare and adopt a procedure to properly manage any transformers encountered as part of the maintenance and replacement program which predate the ban and which may have the potential to contain PCB contaminated insulating oils. The procedure will include testing of the insulating oil and documentation of proper treatment and disposal of oil and equipment found to contain PCBs, in compliance with Brazilian requirements.

Cemar does not use significant quantities of hazardous materials in construction or operational activities. The insulating oils used in all of its new or refurbished transformer are of mineral origin. Additionally, the majority of power transformers which contain the greatest quantities of oil in a single piece of equipment are installed on top of concrete containment structure able to temporarily hold the contents of the transformers in the event of an accidental release due to fire or other malfunction.

- Noise:

Noise in the form of buzzing or humming, as well as ground vibrations, can sometimes be emitted from high voltage transformers in sub-stations. In December 2006, Cemar was issued a notice of non-compliance by the state of Maranhao Secretariat of Environment and Natural Resources in response to a public complaint about transformer noise at a location within the city of Sao Luis. Cemar is in the process of implementing corrective actions to comply with state of Maranhao and World Bank Group noise standards and guidelines.

- Atmospheric Emissions:

The main sources of atmospheric emissions include combustion emission from the fleet of maintenance vehicles operated by the company and its sub-contractors. Additional sources of emissions include the gas SF6 used for isolating purposes in switching equipment and indirect emissions from the production of electricity for own consumption. Screening estimates from all of these sources indicate that total GHG emissions are below 100,000 ton-CO2 equivalent per year.

- Energy Efficiency:

Given that the greatest opportunity for improvement in energy efficiency lies with the company’s reduction in technical losses and improved efficiency of end users (customers), Cemar has historically planned and implemented programs to promote and invest in improvement of both of these areas. Ongoing capital investment projects include improvements in the sub-transmission capacity which will help reduce technical losses while historically the company has donated over 175,000 energy efficient fluorescent light bulbs to low income families and substitution of over 60,000 lamps for public lighting in over 100 municipalities. The program with the municipalities resulting in the replacement of mercury vapor public lighting lamps with lower wattage sodium vapor substitutes and therefore had the double benefit of reducing energy consumption and removing a product with hazardous substance. Cemar has implemented additional energy efficiency programs with the replacement of lighting systems in public schools and the replacement of lighting and cooling systems in the University of the State of Maranhao.

- Community Health and Safety:

The company has a program that aims to educate communities in the service areas about the hazards associated with accidental contact with electrical equipment in public areas (i.e. by children climbing in trees located near power lines, while retrieving kites, or by approaching fallen cables, etc) as well as safety measures for end users in the household (i.e. avoiding handling of connections on wet surfaces or keeping hands out of light sockets, etc). The company monitors the total number of accidents and fatalities associated with interactions between the community and the distribution infrastructure. The total number of accidents for 2006 was below the Brazilian average and amongst the lowest for reporting companies. Public fatality rates have shown a relative decrease over the last 3 years (from 12 in 2004 to 3 in 2006). The company provides specific procedures and trains its employees in the safe operation all types of light and heavy-duty vehicles in order to reduce the rate of accidents.

The company provides instructive information to communities in presentations or via the internet on such issues as the safe use of electricity in the home, staying away from broken transmission and distribution cables, avoiding illegal access into substations and other infrastructure by children at play, and other general safety precautions around electric installations.

The company has a well-publicized emergency call-in number that is attended 24 hours a day, seven days per week, as well as service personnel available around the clock. There is a procedure in place to forward emergency calls to the appropriate public services in charge of emergency response when these are required based on the nature of the emergency.

- Biodiversity Conservation:

Given that over the two thirds of the State of Maranhao, and hence the company’s concession are is located in the Legal Amazon, and given the presence of several legal protected areas within the state, the company actively and successfully manages biodiversity concerns associated with its operations. Cemar’s environmental management program includes a screening process for projects which are likely to be located in legally protected areas or other situations requiring special environmental permits for the removal or alteration of existing vegetation. In these cases, the company contracts the services of environmental consultants to assist in the preparation of environmental impact assessments and processing of the permits with the state or federal environmental authorities. While the vast majority of Cemar’s construction of new distribution lines takes place along existing urban and rural roads with limited vegetation removal, where vegetation removal activities are required, these are performed in accordance with the requirements of environmental permits. Vegetation management programs along sub-transmission line rights-of-way or urban distribution systems are designed to maximize the use of local non-invasive species that do not interfere with the network operation and maintenance activities.

Client's community engagement

The communities potentially affected by the company’s operations are also its costumers and Cemar devotes significant efforts toward effective communications with the communities it serves and where company infrastructure is located.

The principal means of communication is through a customer call center which operates 24 hours a day, seven days a week. The center is staffed by over 50 subcontracted operators who attend about 270,000 monthly calls from customers and the community. Although the majority of calls are costumer service related, they are also able to help customers who report emergencies. The call center tracks the speed and effectiveness in the resolution of complaints with a target toward continuous improvement in client and community satisfaction. Costumer and community complaints which can not be expediently resolved by the client service function are elevated to a grievance office who also liaises with public consumer protection entities such as the Foundation for Consumer Protection and the Commission for Public Energy Services for the resolution of difficult cases.

Formal community engagement activities are complemented by a series of more informal activities including educational presentations to communities who are part of the Light for All Program and for whom electric service is a new experience. These educational presentations, conducted in all small rural communities reached by this program, focus on the safety and efficient use of electricity. Programs for the electrification and formalization of service include a continuous engagement process with community leaders and individual residents. Community engagement is also facilitated through a network of client service and payment centers operating during daytime hours.

The copies of environmental and social impact assessments conducted for new projects will be made available for public view at the following location:

Companhia Energética do Maranhão
Av. Cel. Colares Moreira, 477, Renascenca II
São Luís, MA, Brasil

IFC PROJECTS