IFC requires that this document is made available through the World Bank InfoShop and to the locally affected community no less than 30 days prior to project consideration by the IFC Board of Directors. The Summary of Project Information (SPI) also provides details of where the ERS has been made available to the locally affected community. The SPI must be sent to World Bank InfoShop no less than 30 days prior to project consideration by the IFC Board of Directors.

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. The review of this project consisted of an IFC-sponsored independent technical and environmental audit (conducted by Halcrow Consulting Engineers in October 2002) of ANSM’s operations, performance, and capital works program. The following potential environment, health and safety and social impacts of the project were analyzed. - Raw water resource use and management; - Potable water treatment technology and finished water quality; - Wastewater management and water quality impacts; - Sludge management; - Hazardous materials management and emergency response; - Employee health and safety - Low-income users ability-to-pay; and - EHS management systems.

ANSM has presented plans to address these issues and to demonstrate that the proposed project will, upon implementation of the specific measures comprising an associated Environmental Action Plan, comply with Chilean laws and requirements variously administered by SISS, CONAMA, the Ministry of Health and relevant local health authorities, and applicable IFC/World Bank policies and guidelines. Detail on each issue is provided below. - Raw Water Resource Use and Management. ANSM relies on both groundwater and surface waters for its sources of raw water, with the majority of supplies for the 30 potable water systems coming from groundwater wells. Quantities are sufficient to meet current and future needs, and quality is generally good enough such that only minor levels of treatment are required to meet drinking water quality standards. Only a few sources pose raw water quality problems, and these are limited to turbidity and elevated levels of naturally occurring iron and manganese. Existing treatment processes in place at the various localities are able to treat raw waters to comply with Chilean and WHO drinking water standards. Groundwater sources for any of the potable water systems are not threatened by contamination from industrial activities. - Potable Water Treatment Technology and Finished Water Quality. For many systems, particularly those relying on groundwater where raw quality meets drinking water standards, the only treatment provided is chlorine disinfection. In those ten localities where raw water presents turbidity problems, conventional physical/chemical treatment processes -- chemical dosing, flocculation, sedimentation, filtration, as well as disinfection – are used to produce appropriate quality finished drinking water (Historical quality problems at the Constitucion water treatment works (WTW) with turbidity, iron and manganese should be mitigated with the start-up and commissioning of the new treatment works). The only exception is at the Licanten WTW, where an additional, sophisticated chemical oxidation process has been added to achieve the necessary removals of iron and manganese naturally present in the raw water. - Wastewater Management and Water Quality. Approximately 94% of the population within the ANSM service area is currently connected to the existing sewerage networks of the 30 localities which make up the concession. Most of the wastewater is of domestic origin, but several of the systems – notably, Talca, Linares, Curico, and Constitucion -- also receive high-strength organic wastewaters from the fruit processing and wine production industries located within their service areas and discharging to their sewerage systems. Currently, only about 24% of collected sewage is treated by 8 wastewater treatment works (WWTW’s); the remainder is discharged untreated to nearby surface streams or rivers.Enacted in 2000 by the Chilean national government, Supreme Decree (DS) No. 90 establishes new effluent limitations for river discharge that will become effective in 2006 and applicable to all ANSM’s sewage discharges according to the Development Plan. Although there are some quantitative differences between the Chilean and World Bank limits for key pollutant parameters, the levels of treatment and technology required to achieve each requirement are effectively the same when viewed in terms of the practical capabilities of the treatment technology needed to achieve pollution removals. That is, properly designed and operated secondary-level biological treatment facilities provided with adequate disinfection processes should be able to comply with both sets of limits. Accordingly, ANSM is proceeding with capital investment plans to provide secondary-level sewage treatment for all 30 systems within the concession by 2005. At 24 locations, the company will provide conventional activated sludge treatment technology to meet discharge requirements. At the remaining sites, aerated lagoon technology will be used. All treatment facilities will also be provided with disinfection processes, mostly chorine-based (two will disinfect using ultraviolet radiation technology). In addition, facilities that will receive wastewater from the 35 industries discharging to their sewerage systems have been designed to accept and treat these additional flows and pollution loads. ANSM’s successful and timely implementation of these sewage treatment investment plans should reverse the current degradation of the receiving waters, and improve and protect the rivers and streams throughout Region VII. - Sludge Management and Disposal. Water treatment sludges are being generated from filter backwashing and sedimentation tank cleaning at only six potable water treatment plants, and only in relatively small amounts owing to the relative high quality raw water being treated. Currently, sludges are returned (as relatively low solids content slurries) to nearby rivers and streams, without any adverse impact and with the approval of the Chilean environmental authorities. Notwithstanding, ANSM plans discontinue this practice, and instead replace it in the near future with a system involving construction and operation of sludge holding lagoons/tanks followed by off-site landfill disposal of the concentrated solids, or another appropriate technical solution.Currently, only four WWTW’s – Teno, Empedrado, Cuaranipe and Curico -- generate significant amounts of wastewater sludges. In each case, after dewatering/drying, sludges are disposed in authorized solid waste landfills. Additionally, Curico WWTW sludges are stabilized with lime prior to landfill disposal.Similar to based on U.S. EPA’s regulation governing the treatment and disposal of municipal sewage sludge, a new draft Chilean sludge management regulation (Resolution No. 0027) is expected to come into force soon. Essentially, this new regulation establishes standards and restrictions for various ways to dispose WWTW sludges. ANSM plans to maximize its disposal of WWTW sludges through agricultural re-use methods, land restoration and forestry application under the requirements of the new regulation. Not only is this method less costly than landfilling, it promotes sustainable re-use of this waste material. As part of their ongoing planning efforts, ANSM is working in cooperation with the University of Chile on a project to develop an approach for sustainable application of sewage sludge on forest industry land. Through Thames Water, ANSM will also explore opportunities to implement sludge digestion processes at its WWTW’s. In addition to allowing the company to meet the new requirements for disposal as an agricultural soil conditioner, sludge digestion produces biogas which could be used as an efficient energy source for WWTW plant heating as well as generate electrical energy. - Hazardous Materials Management and Emergency Response. ANSM stores and uses chlorine at most of its WTW and WWTW facilities for disinfection. In general, the smaller facilities use sodium hypochlorite, whereas all others use chlorine gas. Recognizing that an accidental release of chlorine gas could present a high risk to adjacent communities, the company appropriately handles and stores chlorine gas containers to minimize and mitigate the impact of an emergency. All related requirements of SISS have been adopted at each facility, including gas detection alarms, storage room ventilation, and provision of safety equipment and emergency kits. ANSM recently updated emergency plans and procedures, and facilities and processes are regularly inspected by Thames Water experts. Procedures also include the investigation of all chlorine-related accidents and incidents. All staff engaged in handling chlorine are trained in its use and in the use of the emergency kits. ANSM’s chlorine supplier, Oxy-Chile, also provides training in the proper handling of the chemical to ANSM employees twice per year.ANSM’s emergency plans and procedures are being integrated into a Thames Water Chile corporate-level procedure that will combine them with those of ESSBIO and ESSEL. Finally, as a member of a new association of all Chilean water and sanitation utilities (ANDESS), ANSM is working on a common regional contingency plan for earthquake emergencies. - Employee Health and Safety. ANSM has implemented an occupational health and safety policy program, the main goal of which is to prevent and control risk factors within the workplace, communities and the environment. The program provides employee safety and health training, and makes available personal protective equipment appropriate to an employee’s job conditions. Each work area undergoes an periodic inspections of facilities and processes, and appropriate corrective and/or preventive measures are recommended. Containing a written set of safe work procedures organized by various job descriptions, a safety manual is regularly updated and made available to all employees. Contractors and suppliers are also required to comply with all technical and administrative features of the ANSM health and safety program. Control is enforced through regular audits and inspections of the work sites. - Low-Income Users Ability-to-Pay. Low-income water and sanitation utility customers throughout Chile, including those in the ANSM service area, receive cost subsidies from the national government to ensure their household water and sewer service bills are affordable. In general, households that must devote more than 3% of their monthly income to water and sewer service bills are eligible to receive subsidies. Subsidy amounts range from 30% to 70% of the monthly bill, depending on the household income level. Chile’s national Ministry of Planning determines the overall policy for assigning the levels and number of households with subsidy rights, and then allocates funds to municipal governments for distribution to water & sanitation companies, such as ANSM. ANSM, in turn, credits the amounts received to the accounts of those individuals identified by the municipal governments as eligible. - EHS Management Systems. Although ANSM’s organization typifies a water company structure, the lack of an independent water quality and environmental regulatory compliance department is somewhat unusual, and offers opportunities for business conflict under certain circumstances. ANSM will consider separating responsibilities for environmental compliance from core utility operations to ensure avoidance of compromising situations.ANSM will also seek to improve access to and take more advantage of knowledge transfer and corporate experience of available Thames Water skills. More effort will be devoted to dissemination of Thames corporate knowledge – for example, in the area of biogas production from sewage sludge digestion and its use as an energy source.

The Environmental Action Plan lists three (3) specific mitigation measures that the sponsor will undertake so as to ensure compliance with applicable environmental requirements.

Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environment and social policies and the environmental, health and safety guidelines upon successful implementation of the agreed mitigation measures described above and listed in the associated Environmental Action Plan.

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) prepared for the project covering: - the status of implementation of any measures contained in the Environmental Action Plan; and - ongoing performance of project-specific environmental, health and safety and social activities as reflected in the results of periodic and quantitative sampling and measuring programs. Periodic site supervision visits will also be conducted.