11384 - Asia Strategic Investments Corporation

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Environmental Review Summary

Project Number

11384

Company Name

Asian Strategic Investments Corp. Beijing Representative Office

Date ERS Disclosed

May 6, 2002

Country

China

Region

East Asia and the Pacific

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Jun 27, 2002
Signed : Feb 27, 2004
Invested : Mar 1, 2004

Sector

Motor Vehicle Parts

Industry

other

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

Asian Strategic Investments Corporation (ASIMCO) is a Cayman Islands investment management company, headquartered in Beijing, that directly manages and operates an automotive components group (the group) on behalf of two Limited Partnerships (funds). The group consists of 12 majority-owned manufacturing facilities, 2 specialized subsidiary joint ventures, 36 local sales offices, and 1 sales office in the US. As a majority of these facilities were formerly Chinese state-owned enterprises, government entities still own on average 38% of the group and the funds own 62%.

The group operates as an integrated entity supplying both the Chinese and the international automotive markets. Its main product lines include foundry castings, brake systems, diesel fuel injection systems, electrical products and engine parts and accessories.

This US$80 million project (the project) consists of: (i) the establishment of a new company (NEWCO) to acquire the funds'' ownership of the group; (ii) and financing of the working capital needs of NEWCO for the purpose of upgrading and rationalization of the group''s business, including environmental upgrades. IFC will be among the new investors who collectively will acquire about 70% of the funds'' ownership interest in the group and the balance of 30% of the funds'' ownership will remain with some of the limited partners. IFC is considering an equity investment of US$15 million in NEWCO.

IFC made a US$19 million loan to one of the operating companies - Shanxi International Casting Co. (SICC) in fiscal year 2000. The environmental performance of this investment has been satisfactory: the environmental upgrades required as part of IFC''s investment have been made and management has been conscientious in seeking to improve environmental, health and safety performance and have regularly reported on the results.

Environmental and Social

ASIMCO has presented plans to address these impacts to ensure that group operations will, upon implementation of the specific measures agreed, comply with applicable host country laws and regulations and World Bank/IFC requirements. The information about how these potential impacts will be addressed is summarized in the paragraphs that follow.

Environmental Upgrade Program - Introduction
ASIMCO has developed an environmental capital expenditure (CAPEX) budget for the years 2002-2006. This was compiled by the management of each operating company and projects the expenditures required to ensure adequate environmental performance on a operating company by operating company basis. The figures have been reviewed as part of the baseline audit and revised where necessary in order to (1) provide clarity on the driver for each expenditure (e.g. compliance to national law, compliance IFC requirements or to meet industry best practice), (2) revise any over-estimates or under-estimates, and (3) add necessary or delete unnecessary expenditures.

The total environmental CAPEX sum for the fiscal years to 00/01 was RMB 39 million ($4.6 million). Key expenditures in this figure included:

new rubber mixing with modern pollution abatement control at ASIMCO Anhui;
particulate control measures at SICC;
wastewater treatment upgrades to serve electroplating operations at ASIMCO CYPR;
spray painting improvements at ASIMCO HSE
wastewater treatment upgrades at ASIMCO BYC
particulate control measures at ASIMCO Langfang.

The projected environmental CAPEX sum for 2002 to 2006 is RMB 25 million ($3 million). Preliminary findings from the baseline audit have identified an additional RMB 2.2 million RMB ($270,000) of expenditure necessary to ensure compliance with Chinese and IFC requirements, bringing the total to more than RMB 27 million ($3.3 million). IFC has allowed a sufficient sum for environmental upgrades within the project cost.

Environmental Upgrade Program - Specific Initiatives
Key environment, health and safety (EHS) upgrades for the 2002-2006 period are highlighted below.

Anhui, where iron is cast for hydraulic jacks and rubber is mixed and molded for seals, O rings and other rubber parts. Several planned upgrades, including conversion of cooling water to closed loop system, improvement to dust collection systems, purchase of rubber recycling equipment and boiler retrofit. The baseline audit has also recommended separation of process wastewater from other streams and installation of a wastewater treatment plant.
BYC, where diesel fuel injection systems are manufactured. Improved shielding of electromagnetic radiation from electric induction furnace, improvements to process drainage and retrofit of boiler (coal to gas) in order to comply with Beijing clean air regulations.
Langfang, where brake parts are cast and assembled. The foundry also casts other components. Several planned upgrades, including improvements to dust collection system in foundry and cupola areas (to improve workplace air quality) and noise reduction measures for the fitting workshop. In addition, the baseline audit recommends some upgrades to the drainage system (routing of various drain lines on site to a single interceptor and discharge point).
ASIMCO Casting, where aluminium castings are manufactured. Improvements to dust collection system to improve workplace air quality, additional measure to reduce workplace noise levels, drainage and catchment pit upgrades.
SICC, where engine blocks and heads are cast. Planned improvements to wastewater collection and treatment, particulate control and workplace noise reduction.
CYPR, where piston rings are cast and plated. Major retrofit of the wastewater treatment to ensure compliance with IFC guideline requirements. The baseline audit recommended that some planned expenditures were revised downwards, including those associated with dust control and waste disposal.

Environmental, Health and Safety Management Systems
The expenditure to date on environmental improvements, together with the detailed environmental CAPEX plans which have been drawn up for the next four years clearly indicate ASIMCO''s recognition of and commitment to pro-active environmental, health and safety (EHS) management. The budgeting process is underpinned by broader group goals to promote EHS performance at the operating company (OC) level, including the establishment of Environmental Protection Committees, provision of environmental awareness training to all employees, development and implementation of EHS management procedures and certification to the ISO 14001 environmental management standard. Anhui was the first OC to achieve ISO 14001 certification - and a target date of December 2004 has been set for all OCs to certified.

IFC has also provided advice to ASIMCO on strengthening the corporate role in EHS management in order to drive continuous EHS improvement. ASIMCO has acted on this advice and created a group Environmental, Health and Safety Committee, chaired by the Chairman and CEO of the group and including General Managers of all the OCs plus other key personnel (e.g. Quality Manager, Director of Internal Control and Executive Vice President). Aside from the oversight role it will play in relation to EHS performance, it will also promote the sharing of best practice among OCs.

Note: Currency equivalents have been calculated on an exchange rate of RMB 8.27 to $1.00

Conclusion & Monitoring

IFC will evaluate the project''s compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing the annual monitoring reports (AMRs) which ASIMCO will prepare and which will cover:

commitment status of planned environmental CAPEX (including justification for any investment which has been delayed or revised);
individual OC performance against national and IFC requirements;
ISO 14001 certification status of OCs.

Through supervision visits and other contact, IFC will also seek evidence that the OC and group commitment to environmental management systems is driving continuous improvement, such as pushing EHS performance requirements down the supply chain.

This Environmental Review Summary (ERS) 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. Any documentation that is attached to this ERS has been prepared by the project sponsor or in conjunction with 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. The following ERS is disclosed in accordance with IFC's Disclosure of Information Policy that went into effect September 1998.

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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