Hidromaule II

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	26483
Country	Chile
Sector	Utilities
Department	Infrastructure
Company name	Hidroelectrica Rio Lircay S.A.
Environmental category	B
Status	Dropped

Date ESRS disclosed	May 11, 2009

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 visited the proposed project region and interviewed project development personnel to evaluate their management systems and procedures and to understand how these will be implemented during construction and operation of the proposed project facilities. IFC reviewed a series of environmental and social management systems documents and permit applications for the proposed project including:

- Declaration of Environmental Impact (DIA) and related annexes
- Draft Environmental and Social Management Plans
- Lead contractor health, safety, and environmental procedures

Project description

Hidroelectrica Rio Lircay S.A. (“HRL” or the “Company”) is a Chilean Sociedad Anonima established to develop and operate two run-of-river hydropower projects in Chile’s VII region: (i) a 6 Megawatt (MW) plant (“Mariposas”), and (ii) a 12.8 MW plant (“Providencia”). The Project is being developed by (i) Italian company Sorgent-e S.R.L. (“Sorgent-e”) who will have 53% direct and indirect ownership of the Company, and (ii) Chilean company Empresa Austral Andina S.A. (“EAA”, together with Sorgent-e S.R.L. the “Sponsors”) who will have 47% direct ownership.

The Project consists of the construction and operation of the Mariposas and Providencia plants which are the second and third in a series of run-of-river hydropower plants being developed by the Sponsors located in the same irrigation canal network. The first plant, also an IFC investment (“Hidromaule”, Project ID 25568), is comprised of a 20MW run-of-river hydropower plant (“Lircay”) with a 27 km transmission line connecting the plant to a local distribution company’s substation. The Lircay plant has been operating successfully since October 2008. The proposed Project is being developed under the same ownership structure and management and with the same group of key contractors as was Hidromaule.

The Mariposas plant considers the use of the water rights of ACM an irrigation association (Asociacion Canal Maule). For this development the water would be used starting at the end of the first section of the Maule Norte Alto Channel (MNAC) and its natural discharge into the Mariposas creek and the start of the Mariposas irrigation channel without interfering with the established irrigation uses. The difference in elevation (gross head) is 35.25 m. Project works will include elevation of the borders of the MNAC channel and improvements to the existing Paso Nevado tunnel and the Teatinos siphon. A forebay or charge tank will be built from which a penstock (pressure pipe) of 2.7 m diameter and 220 m in length will carry the water to a power house. The water discharge will be to the Mariposas channel.

Providencia HPP considers the use of part of the water rights that flow in the second section of the Maule Norte Bajo Channel (MNBC) and water rights of the Irrigation Cooperative of the Center Limited (Cooperativa de Riego del Centro Limitada). The project works will include improvements of the walls of the channel, rehabilitation of a small length of an existing tunnel, and improvements of two bridges. A new channel will conduct the water to a charge tank, from which a penstock with a diameter of 3.0 m and 174 m of length will carry the water to the power house that will be equipped two Francis units of 8.5 and 4.3 MW respectively. The water discharge will flow to the Picazo creek and then to the Lircay river.

The Mariposas and Providencia plants will be connected to the existing Lircay substation via newly constructed transmission lines that are 10 km and 11 km long, respectively.

Key environmental and social issues and mitigation

The company has assessed the anticipated impacts and will put necessary plans in place to ensure that the proposed project will comply with Chilean legislation and IFC’s Performance Standards. Information about how these potential impacts will be addressed is summarized in the paragraphs that follow:

- PS1: Social and Environmental Assessment and Management System

- Environmental and Social Assessment - The Company is required by local regulators to file limited environmental impacts studies (Declaraci�n de Impacto Ambiental (DIA)) and supporting information. The DIA for the Mariposas Plant was prepared by Jaime Illanes y Asociados of Santiago and presented to the Comisi�n Regional del Medio Ambiente (COREMA) for Chile Region VII on January 13, 2009. Approval of the DIA and issuance of the Environmental License (Resoluci�n) is pending. The construction of the Providencias plant the respective transmission lines to connect the hydro plants to the electric grid will require preparation of separate DIAs and issuance of environmental licenses which will be prepared and approved prior to initiation of construction activities as required by law.

The DIA for the Mariposas plant includes a detailed evaluation of potential impacts and mitigation measures of the physical and biological environment including construction phase impacts such as dust emissions due to site preparation, construction equipment operation, and excavated materials management; liquid and solid waste generation from day camp support facilities (no workers will be housed at the site); and noise and vibration from construction machine operation. The main operational phase impacts identified in the assessment include noise as well as visual changes to the landscape.

The project components, including the respective transmission lines, have a limited area of influence. There are no associated facilities. The project is being developed to its full potential capacity initially. No other projects nearby are planned or known. The project will occur entirely within Chile and the river systems affected are not international waterways. No transboundary effects are anticipated. No disadvantaged or vulnerable groups have been identified in the area of influence.

- Management Program – During the construction phase, the lead construction company, Icafal, will be contractually required by the Company to prepare Project-specific environmental and social management plans (ESMP) to comply with certain environmental and social conditions of the permit issued by COREMA covering such aspects as: protection of flora and fauna; excavated materials management; control of soil erosion and dust emissions; management of sanitary effluents, hazardous and non-hazardous wastes from construction support yard; traffic safety; and occupational safety. The ESMP will specify mitigation measures for potential adverse impacts during the construction phase of the Project as identified in the DIA and the environmental permit conditions, including any required guidelines and procedures to ensure proper environmental design, management, and monitoring. The ESMP will be consistent with the IFC General Environmental, Health, and Safety (EHS) Guidelines, including the specific sections on environment, occupational health and safety, and community health and safety applicable to a Project construction phase.

HRL will prepare and implement an operational phase management program with plans and procedures to cover the execution of environmental permit monitoring requirements and health and safety risks associated with the operation and maintenance (O&M) of project assets.

- Organization – Primary environmental permitting and management responsibilities are formally assigned to HRL’s management team, specifically to its Manager of Project Development, who has been responsible for identifying environmental legal requirements applicable to the project, engaging technical experts to prepare impact studies, land purchase negotiations, and developing and implementing community consultation activities. Implementation of environmental and social requirements in the field will be assigned to HRL’s on-site Project Manager and through contractual agreements with the lead construction contractor and technical consultants. HRL’s on-site project manager, together with the Manager of Project Development, will ensure the implementation of a monitoring program to verify contractors’ compliance with project environmental and social requirements.

During the operational phase, HRL will appoint an environmental and occupational health and safety coordinators will have primary responsibilities for the implementation of the Project’s EHS requirements including monitoring and reporting on the operational phase permit conditions and other applicable legal requirements following a project-specific management program to be developed by HRL.

- Training – Through the construction contract, the Company will ensure that construction contractors include environmental and occupational health and safety (EHS) training programs and procedures so that all workers are familiar with their responsibilities applicable to the EHS mitigation measures identified in the DIA. Contractors shall also ensure existing workers are up to date on health and safety training. Induction activities will include such aspects as verification of training status for existing workers, training new employees or subcontractors, and project kick-off meetings and periodic safety talks for all workers delivered by experienced professionals responsible for EHS matters. During the operational phase, HRL will ensure that persons responsible for the implementation of the operational phase management programs are trained on EHS requirements.

- Monitoring and Reporting – HRL will be responsible for monitoring the effectiveness of EHS and social mitigation measures described in the DIA and environmental permit and providing the required reports to CONAMA. Monitoring and reporting will be performed by construction contractors and external consultants, as appropriate to evaluate HRL’s compliance with environmental permit requirements and contractor requirements with the procedures outlined in the project-specific ESMP. HRL will also monitor and report on contractor’s health and safety performance.

During the operational phase, HRL will implement the monitoring requirements outlined in the environmental permits and project-specific ESMPs, implementing an appropriate internal EHS audit program for O&M activities covering appropriate occupational health and safety issues, reporting the results to corporate senior management.

- PS2: Labor and Working Conditions

For each of the hydroelectric plants, the Project will employ about 250 workers at the peak of the construction period (10 months), and average about 190 workers over the period of 14 months of construction. The construction of Providencia will be executed during the second half of Mariposas time schedule. Thus, during some months, the plants together will employ near 500 employees.

Chile has ratified the main ILO Conventions on trade union rights (Conventions No. 87 and No. 98), forced labor (Conventions No. 29 and 105), child labor (Conventions 138 and 182) and discrimination (Convention No. 100 and No. 111). National law offers protection in each of these areas. Chile’s Labor Code stipulates that the employer is obligated to take all measures necessary to effectively protect the lives and health of workers, maintain adequate safety and health conditions, and provide the necessary tools to prevent occupational accidents and diseases.

The lead contractor and any subcontractors will be required to comply with all relevant Chilean legislation (including laws and regulations on acceptable conditions of work, monthly minimum income and maximum permissible work-week). Construction contracts will specify occupational health and safety commitments to be observed by the contractors and subcontractors, as well as monitoring responsibilities. During the construction phase, HRL will contractually ensure that hiring of local labor is maximized particularly for semi-skilled and unskilled work. Influx of laborers will be actively managed to avoid burdening of local services and infrastructure.

During the construction phase, all contractors will be required to apply their respective occupational health and safety programs. The main construction firm Icafal, who was the main contractor for the Hidromaule project, has standardized health and safety procedures covering aspects applicable to the project such as: heavy equipment operation; earth excavation and movement; use of manual and mechanical tools; driver safety; use of explosives; cement application; etc.

The Project will require that contractors train employees in understanding workplace risks and their prevention and control, including the use of personal protective equipment (PPE), hazardous materials handling, and emergency response. Incidents and accidents will be investigated by individual contractors and followed up by HRL according to a documented procedure so that steps can be taken to prevent reoccurrence.

During the operational phase, HRL will hire approximately three (3) workers for daily operations and rely on the support of contractors for electro-mechanical maintenance activities. HRL will develop a human resources policy which defines Company and workers requirements and responsibilities with regards to a wide range of labor issues covered by Chilean law and including: contracting procedures and terms of individual employment contracts; working hours, shifts, and overtime; rest periods and vacation policy; compensation; occupational training; contract termination; grievance mechanism and procedures; and occupational health and safety policy and procedures.

HRL will also develop and implement an occupational health and safety program during the operational phase which includes a set of operating objectives and procedures based on the identification and quantification of workplace risks coupled with applicable legal and other requirements. Documented procedures for employees and contractors will address the continuous identification of dangerous conditions, evaluation of associated risks, and implementation of control measures. HRL will require that operational phase contractors train employees in understanding workplace risks and their prevention and control, including the use of personal protective equipment (PPE), hazardous materials handling, and emergency response. Incidents and accidents will be investigated according to a documented procedure so that steps can be taken to prevent reoccurrence.

- PS3: Pollution Prevention and Abatement

HRL will require that all construction contractors comply with the DIA findings and Environmental Permit conditions (including associated monitoring requirements), which may included such aspects as fugitive dust from earth moving activities; noise and exhaust from construction machinery; sanitary effluents from worker facilities, and non-hazardous and hazardous solids wastes. The actual requirements will be outlined in the Environmental License which is still pending for all Project components.

- Management of resources including energy, water, hazardous and other materials – The construction and operation of the project will not require the use of significant quantities of energy, water, natural resources, or hazardous materials. Construction activities will require the temporary storage and use of fuel and lubricants for heavy equipment.. Fuel requirements are intended for a local electric power generator, excavators and earth movement machinery. Fuel will be delivered by an authorized service company and a special site for fuel handling will be put in place with an impermeable surface. Small vehicles such as vans and light trucks will be refilled in the near villages. Thus, this project will not consider on-site fuel storage.

- Waste management – The main sources of waste generation will occur during the construction phase of the project and will include excavated materials from civil works site preparation (e.g. soil and rock materials); miscellaneous organic and inorganic domestic waste from work campsite food service and offices (e.g. food, paper, and plastics); equipment shipping materials (e.g. wood crates, cardboard, etc); and construction equipment maintenance wastes (e.g. waste lubricants, used oil filters, etc). Additionally, wastewater treatment sludge and other sanitary wastes will be respectively generated from the temporary operation of a sanitary wastewater treatment plant in the construction day camp and the use of portable toilets in field construction areas. All of these wastes will be managed according to a Waste Management Plan and in according with Environmental Permit conditions. Soil and rock materials will be placed in designated disposal areas and later reinstated with native vegetation. Recyclable portions of domestic and equipment shipping materials will be recycled where feasible based on the availability of local markets while remaining portions will be transported by authorized service provider to an authorized waste disposal site. Waste lubricants and other potentially hazardous materials will be temporarily stored in closed containers and placed in a specially designed area with impermeable floor and protection against the rain / elements, accessible only to authorized persons. They will be managed by licensed transport contractors and treated or disposed of in licensed facilities. Sanitary wastewater and its treatment sludge will be disposed of at an authorized sanitary waste management entity. All waste materials shipments to off-site treatment or disposal will be performed following chain-of-custody procedures.

- Management of emissions and discharges – The main sources of emissions and discharges identified in the DIA are dust emissions from site construction activities following vegetation clearing including equipment traffic in internal roads and dust emissions from placement of excavated materials in approved excavation fill disposal areas. The project will also generate effluents from the day work camp sanitary wastewater treatment facility. Dust emissions will be minimized by humidifying dirt roads and other exposed materials such as excavated materials and soil / rock accumulation sites as well as by limiting the speed of heavy equipment transit on dirt roads. It is estimated that approximately 1.35 m3 of sanitary wastewater effluents will be generated daily for a period of 14 months. Sanitary wastewater will be treated via a temporary sanitary water treatment plant to meet Chilean discharge water quality standards applicable to irrigation water. This will be supplemented to the use of chemical toilets in field areas located away from the construction staging area. During the operational phase, the facility’s control room will be serviced by an on-site sanitary septic tank with an approximate capacity for up to ten (10) persons.

Ambient Noise – The Project sites are located in a rural area with sparse population. Environmental assessment activities for the Mariposa project indicate, based on noise predictive models, that noise generated by the powerhouse will be below applicable noise standards and IFC EHS Guidelines values at the nearest homes, located within the immediate project area. Noise levels measured at 1.5 meters from the generating units will be below the occupational exposure values of 85 dBA.

- Greenhouse Gases – The Company estimates that the Mariposas plant will generate about 42.6 GWh of electricity in an average hydrologic year, which will result in the avoidance of 17,000 tons of CO2 annually. The Company estimates that the Providencia plant is expected to generate about 62.2 GWh of electricity in an average hydrologic year, which will result in the avoidance of 25,000 tons of CO2 annually.

HRL will prepare construction period and operations emergency preparedness plans prior to the start of any site work activities and power generation activities, respectively.

- PS4: Community Health, Safety and Security

The Mariposa and Providencia plants will rely on existing irrigation channels which will be improved (mainly through elevation of the sides). Both plants will include a forebay (intake structure), steel penstocks (2.7 meter in diameter and 220 meter long for Mariposa and 3 meter in diameter and 174 meters long for Providencia). Construction will occur in a predominantly rural area. Only the Providencia plant will directly impact an existing building which is currently occupied by a caretaker for the Asociaci�n Canal Maule, which has already been agreed with ACM to relocate in the surrounding area. Other houses and small farms are located within several hundred feet of both the Mariposa and Providencia sites but will not be affected by the footprint of the project’s construction or operational activities. There is a small risk that people or livestock could put themselves at risk by entering the covered portion of the canal. Other risks related to the canal are well known in the region as canals are common. HRL will put in place a surrounding fence to prevent entrance of external people to the project facilities. Also several crossing ropes will be installed along the channel, to help people to exit after an accidental fall into the channel.

There will be risks during operation both from normal and emergency events. Although it will be staffed, the power house will be remotely operated and water in the tailrace could pose a risk to passerby. This is normally handled by a horn or siren that sounds prior to the beginning of operation. In emergencies, water in the canal and penstock would be released to prevent damage to the equipment. An emergency overflow will be located at the top of the penstock so that the canal flow can be diverted. Given the very limited public access to the diversion point, risks to people are minimal. Animals or wildlife might be affected.

None of the project locations are high-risk and the structures are small, there is no need for expert review of the designs and emergency provisions beyond the company's designers and the local regulator's review. The company will need to prepare emergency preparedness and response plans; these are expected to be straightforward. Power plant operating staff will likely provide any needed security.

- PS5: Land Acquisition and Involuntary Resettlement

Chile's Electricity Law gives private electricity concessionaires, such as HRL, the ability to acquire land and establish easements through expropriation and other legal proceedings. However, HRL’s policy is to acquire land rights through amicable agreements with the landowners, whenever possible. The company will resort to expropriation or impose easements through the application of the law only in the event that negotiations with owners fail.

The construction of the project’s electricity generating facilities will take place in an area of 6.3 hectares for Mariposa and 10 hectares for Providencia. HRL plans to acquire the required land through negotiated agreements with the affected landowners. The acquisition of these areas will affect one (1) private property for Mariposas.

The construction of the Providencia plant will directly impact an existing residence which is currently occupied by a caretaker for the Asociaci�n Canal Maule. has already agreed to relocate the house in the surrounding area. HRL will ascertain the tenure status of the land occupants and will ensure that measures are taken to restore their livelihood according to the requirements of IFC’s Performance Standard 5. Confirmation of whether other properties may be directly impacted by the Providencia project will be obtained once the basic and detailed engineering of this project has been completed. If this project entails additional economic or physical displacement of persons is unavoidable, HRL will prepare a Resettlement Action Plan that meets the requirements of IFC's Performance Standard 5.

The construction of the project’s transmission line (with an approximate length of 10 km for Mariposa and 11 km for Providencia) will affect approximately 30 landowners. HRL plans to acquire the right of way for line through negotiated agreements with the affected landowners. The line is not expected to displace dwellings or other occupied structures. If displacement is unavoidable, HRL will prepare a Resettlement Action Plan that meets the requirements of IFC's Performance Standard 5.

HRL will develop procedures to acquire the right of way for the transmission line in a manner consistent with Chilean legislation and IFC’s Performance Standard 5. The procedures will ensure that adequate compensation and benefits will be offered to the persons adversely impacted by the transmission line. The procedures will take into account the concerns expressed by impacted persons during the consultation process, and will include procedures to receive and respond to grievances.

- PS6: Biodiversity Conservation and Sustainable Natural Resource Management

The Mariposas and Providencia project settings consist primarily of plantation forests, scrub forests, and grassland with a smaller proportion of native tree and plant species. According to the results of the DIA for the Mariposa project, the areas directly affected by the power generation component and transmission lines do not include habitats of high value or legally protected areas. About 6.3 ha of land will be required for the hydroelectric facilities of the Mariposa plant and another 15 ha for its transmission line. Impacts to plant species will be limited as approximately 70% of project components will be located along existing access roads where introduced species dominate. The DIA for the Mariposa project identified the presence of two plant species under protected status by Chilean law, one classified as “vulnerable” and the other as “data deficient”. Both are found in locations that will not be physically affected by the project’s development. Affected plant species will be handled through a deforestation-reforestation management plan to be approved by the local forestry authority CONAF, where HRL will replant near 2,1 ha of native and exotic plants.

The Mariposa project area is the home of two plant species currently under protected status by Chilean law. One is classified as “vulnerable” and one as “data deficient”. Both of them occur in isolation within plantation forests. According to the DIA, none of these species will be directly affected by the construction activities.

The bird species (Columba araucana (Torcaza)), is classified as “threatened with extinction” while the three reptile species (Culebra de cola corta (Tachymenis chilensis), the lagartija lemniscata (Liolaemus lemniscatus) and Lagartija esbelta (Liolaemus tenuis)) are classified as “vulnerable” by Chilean Law. Only one species of rabbit (Oryctolagus cuniculus)) is listed by the UICN as “threatened” although, as an introduced species, it is considered as ecologically harmful under Chilean law. IUCN lists also the lagartija lemniscata (Liolaemus lemniscatus), as “data deficient”.

The project area is predominantly modified habitat given the presence of agricultural activity and plantation forests with introduced species and no significant negative impacts are anticipated on the above referenced species given the localized nature of project activities.

Client's community engagement

The community that will be affected by the project is effectively the same as the membership in the Canal Maule Association. This Association holds part of the water rights that will be used by the project and have been involved in the process from concept development to the present.

Officers of the Canal Maule and Cooperativa de Riego Associations have previously confirmed their understanding of and support for these projects to IFC. ACM has been presenting the Mariposas and Providencia projects, together with the Lircay project, every year in the annual general assembly meeting since year 2002. Local irrigation communities, which depend from ACM, have been presented the projects on a door-to-door basis in 2007 and 2008. In April 2009, the Mariposas and Providencia projects where announced during the opening meeting of the Lircay project, where almost 50 irrigation community members were present, together with local and national authorities.

The Mariposas project has been officially announced through the Official Gazette, a national coverage newspaper, a local coverage newspaper and radio broadcast during 2008. Similar project disclosure will occur for the Providencia project.

During the implementation of the project, HRL will contact with each of the land owners directly affected by the project, presenting and explaining the project characteristics. Through HRL offices in Talca and in the project site, a complaint system will be put in place and announced in the local community, in order to address any potential concerns or questions about the project implementation and operation.

In addition, the Environmental Agency has reviewed the Client’s documentation: the January 13, 2009 Declaracion de Impacto Ambiental are available on CONAMA’s website (see: https://www.e-seia.cl/expediente/expedientes.php?modo=ficha&id_expediente=3480223&idExpediente=3480223 or http://www.e-seia.cl/ and search for “Central Hidroelectrica Mariposa”).

The DIAs of the Providencia plant and the respective transmission lines will also be made available at the CONAMA website.

Local access of project documentation

Documents can also be reviewed, by appointment, at Hidroel�ctrica R�o Lircay S.A., Av. Presidente Kennedy 5757 Of.802, Las Condes, Santiago, Chile. Please contact:

Carl F. Weber Silva
Hidroel�ctrica R�o Lircay S.A.
Telephone: (562) 245-3600

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