CentroMedico 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	26323
Country	Mexico
Sector	Health Care
Department	Health and Education
Company name	Controladora de Servicios Medicos S.A. de C.V
Environmental category	B
Status	Active

Date ESRS disclosed	November 2, 2007

Previous Events	Invested: April 10, 2008 Signed: January 4, 2008 Approved: December 26, 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

The review of this project consisted of analyzing documentation and information provided by the sponsor on environmental and social management and performance for the existing operations as well as a supervision visit. The site visit included a detailed physical inspection of hospital facilities, discussions with people responsible for EHS aspects at a facility level and at a corporate level. Assessment and compliance with IFC Performance Standards was based on their current practices.

Project description

The proposed $36 million Centro Medico Puerta de Hierro (CMPDH II or the project) repeat project will involve the construction of a new 57 bed hospital in the Tlajomulco district of Guadalajara, Mexico. The facility will offer trauma, gynecological and general medicine services and will include 20 consultation offices to be sold to doctors, following the successful model implemented in the first hospital project implemented by the Sponsors (see below). The Tlajomulco district is in the southern part of Guadalajara and is a growing residential area that currently has no hospitals or clinics. Land for the project has been identified and a first payment has already been made on the property. The Sponsors expect to commence construction in first quarter of 2008.

In June 2005, IFC committed a $14.5 million A loan to finance part of a $69.0 million project to construct and operate a Greenfield medical complex (CMPDH) in the Zapopan district of Guadalajara, consisting of an ambulatory surgical center and a 90-bed general tertiary care hospital. Both facilities are now completed and operational. Both facilities also opened with inaugural year performance significantly above IFC projections (see Figure 1). Although the ambulatory surgical center has experienced slower growth than projected, the hospital more than compensates, having reported a gross profit almost four times IFC projections and is achieving EBITDA margins of almost 30%, only one year after opening. This makes CMPDH one of the most successful hospitals in IFC’s portfolio. CMPDH’s 2007 budget for the ambulatory and hospital (supported by results for the first quarter) exceeds initial projections.

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:

- PS1: Social and Environmental Assessment and Management System;
- PS2: Labor and Working Conditions;
- PS3: Pollution Prevention and Abatement;
- PS4: Community Health Safety and Security.

Issues relating to PS5: Land Acquisition and Involuntary Resettlement have not been identified and are not expected. Land bought by Centro Medico is located in urban areas, and is purchased on a willing buyer – willing seller basis.

Issues relating to PS6: Biodiversity Conservation and Sustainable Natural Resource Management; PS7: Indigenous Peoples and PS8: Cultural Heritage have not been identified at present. However these aspects will be assessed for all new projects in order to determine applicability.

Environmental and social categorization and rationale

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects 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.

Key environmental, health and safety, human resources and social issues in a project in this industry sector include the following:

- Management capacity to manage environmental, health and safety, human resources and social risks and issues;
- Assessment and integrated management systems to ensure environmental, health and safety, human resources and social performance;
- Site selection, acquisition, development and permitting;
- Terms of employment and working conditions;
- Occupational health and safety and implementation of good hospital management practices and employee training programs to prevent nosocomial diseases;
- Quality and sustainability of potable water supply;
- Adequacy of disinfection and sterilization programs;
- Effluent management;
- Monitoring and control of air emissions;
- Solid and hazardous waste management and disposal;
- Hazardous materials management; and
- Life and fire safety in the design, construction and outfitting of new and existing facilities

Key environmental and social issues and mitigation

The company has presented information on its current practices and policies that seek to address these risks and impacts to ensure that the proposed project currently complies with or will upon implementation of specific additional agreed measures, comply with host country laws and regulations and the IFC Performance Standards on Social and Environment Sustainability and environmental, health and safety guidelines. Information about how these potential impacts are or will be addressed by the sponsor/project is summarized in the paragraphs that follow. Additional actions are summarized in the attached Environmental and Social Action Plan (ESAP).

- Integrated Management Systems

Environmental and Social Management System:

Centro Medico is a very well organized institution and the operation is managed according to environmental and health and safety (EHS) best practice in the sector. CMPDH will implement a systematic approach to management of environmental, social and occupational health and safety. Additionally the hospital will seek certification of the management system to ensure adequate integration throughout all Centro Medico operations. Establishment and operation of a formal quality management system that meets the requirements of ISO 9001:2000 was to be completed and certification obtained by March 2007. However during the supervision visit and conversations with the company CMPDH is targeting certification for end 2008.

The company has strengthened its EHS team and each medical center has an operation manager responsible for EHS issues. This has resulted in good EHS performance in their existing medical centers. Monitoring and reporting is an area where CMPDH needs to improve. Reporting of environmental, health and safety and social issues needs to be more systematic and CMPDH has assigned responsible person to do so.

Environmental and Social Assessment:

All facilities have all legal operational permits provided by the Mexican authorities who confirm that all operations are in compliance with national laws and regulations. For new facilities, CMPDH needs to perform an environmental evaluation as part of the permitting process.

Labor and Working Conditions:

CMPDH contracts its employees through two companies. Nurses and technicians are hired through “Grupo de apoyo laboral – Puerta de Hierro”. Administrative and support staff are hired from “Centro de servicios”. Doctors provide their medical services through individual contracts. Current employment in the Group is 595.

CMPDH has developed a Human Resources policy and procedures and will ensure that these are implemented at their contractors. CMPDH complies with national labor laws and regulations and will ensure compliance of all contractors. There is currently collective bargaining arrangement for both the existing and the new hospital. The company has a complaint mechanism which is managed by the human resources department.

Occupational Health & Safety:

CMPDH has developed an occupational health and safety program consistent with the requirements of the US OSHA and with international guidance on the prevention of nosocomial (hospital acquired) infections. There are extensive employee training programs in place with an emphasis on the hazards associated with hazardous health care waste accumulation and management and other particularly hazardous operations within the hospital. Other employee training and development seminars focus on prevention of cross contamination and disease transmission. Accident and unplanned events statistics are collected and analyzed to elucidate required changes in operations and to further reduce lost time accidents and accident severities. Each Group facility has a trained OHS officer responsible for these issues as well as staff training.

Life and fire safety in the design, construction and outfitting of new and existing facilities
The original design of the medical complex in Zapopan did not comply with IFC Life and Fire Safety guidelines. The design was subsequently modified to ensure compliance with IFC’s guidelines and the modified facility design was subsequently certified by external consultants acceptable to the IFC and the facility is now fully compliant. IFC will require independent certification of the adequacy of Life and Fire Safety measures for their new development. Emergency preparedness and response plans are available and comply with national regulation.

- Pollution Prevention and Abatement

Quality and sustainability of potable water supply:

For their existing operations the local municipal system for potable water and sewerage services (SIAPA) provides potable water for general hospital use. SIAPA water is chlorinated as it fills the storage tanks and the storage tank is cleaned periodically. City water is further purified via UV, sand and�activated carbon filtration before circulation for general consumption in hospital. Water for specialized equipment such as hemodialysis units and autoclaves is subjected to further treatment including deionization, filtration and ultraviolet sterilization. It is expected that these practices will be implemented in their new development. CMPDH will implement a water monitoring program to ensure that internal water treatment schemes are adequate for the quality of water provided by SIAPA in accordance with the attached environmental and social action plan (ESAP).

Liquid effluent management:

Liquid waste effluent in their existing operation in Zapopan was to be originally discharged under permit to the SIAPA operated municipal system. An activated sludge secondary treatment system has been installed in the parking garage basement.�Treated effluent is first used as AC system cooling tower water make up; excess will be discharged to municipal sewer system.� Effluent quality data will be provided when system is handed over by contractor. CMPDH will implement equal treatment system in their new development.

Handling and disposal of hazardous and non-hazardous health care waste:

CMPDH conducts internal segregation of health care wastes and all biological, infectious and hazardous health care waste is collected and stored temporarily for pickup in a cold room, with treatment and disposal by a Secretary of Environment and Natural Resources (SEMARNAT) licensed service company, Environmental Communication and Design. To minimize probability of contamination, specific signed routes only are used between collection areas and storage room. System is closely monitored by Ministry of Health inspectors.� Non hazardous waste is collected on a daily basis by another contractor for disposal in a municipal landfill.

Hazardous Materials:

The hazardous materials consist of small volumes of laboratory reagents, chemicals, solvents and cleaners. They are handled in accordance with acceptable practices.

Air Emissions and Noise:

Electric power for the hospital is provided by the grid (CFE). CMPDH has an emergency power generation system to supply critical hospital equipment and areas. CMPDH is evaluating the feasibility of utilization of emergency generating capacity to cover peak demand periods. These diesel fired generators are not operated more than 500 hours/year. Boilers for hot water and steam are electric. Emergency generators (2 x 400 KVA) are located in an echo chamber like setting in a courtyard surrounded by other buildings.� Currently, they are being used about 10 % of the time.� No monitoring of noise levels of this equipment is required by local authorities. CMPDH will monitor noise levels when generators are in operation.

Disinfection and sterilization programs:

CMPDH has instituted a disinfection and sterilization program consistent with local regulatory requirements and international best practice. General use and invasive procedures equipment is sterilized in accordance with these guidelines and with the nature of the material. CMPDH uses ethylene oxide, steam, formaldehyde, and solutions of acetic acid and glutaraldehyde among other techniques for equipment sterilization. Pre-cleaning, sterilization and disinfection procedures are overseen by graduate nursing staff. CMPDH operates very high sanitary and clinical standards. Private hospitals are very closely and seemingly competently regulated by Ministry of Health at both State and Federal- levels in Mexico. Puerta de Hierro is currently completing Ministry of Health certification requirements.

- Land Acquisition and Involuntary Resettlement

Centro Medico Puerta de Hierro (CMPDH) purchased land for their medical complex in the Zapopan district of Guadalajara. The process was based on a willing buyer-willing seller arrangement all required sanitary authority permits for construction and operation have been granted. No resettlement of residents was required. For their new medical development in the Tlajomulco district of Guadalajara, Mexico, CMPDH has acquired land in an urban area. Acquisition is in compliance with national regulations and through a willing buyer/willing seller agreement.

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