11592 - HQI Transelec Chile, S.A.

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Environmental Review Summary

Project Number

11592

Company Name

Transelec S.A.

Date ERS Disclosed

Aug 8, 2002

Country

Chile

Region

Latin America and the Caribbean

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Jan 16, 2003
Signed : Apr 25, 2003
Invested : Apr 30, 2003

Sector

Electric Power Transmission

Industry

other

Department

Regional Industry INF LAC & EUR

Project Description

Transelec is the primary electric transmission company in the central region of Chile. Hydro Quebec International purchased the company in October 2000 from the former operator, Empresa Nacional de Electricidad S.A. (Endesa). The electricity system in which Transelec operates (Sistema Interconectado Central or SIC) extends over 2,200 km north-south and serves over 90% of Chile’s population. The system includes 7,289 km of transmission lines from 66 kv to 500 kV and is supported by 59 substations (of which 48 are directly owned by Transelec and whereby the remaining 11 are owned by third parties with a portion of the equipment being the property of Transelec). Several other companies also operate transmission lines in the SIC. Transelec does not own or operate power plants or distribution companies.

A smaller electricity grid (Sistema Interconectado del Norte Grande or SING) operates in Regions 1 and 2 in the northern part of Chile. The SING extends over 1,700 km. Only isolated systems operate in the less populated extreme southern part of the country.

IFC is considering an equity or quasi-equity investment in Transelec, which needs additional capital to implement system upgrades, expansions/acquisitions, and interconnections anticipated over the next five years (2002-2006).

Environmental and Social

The company has presented plans to address potential environmental and social impacts to ensure that the proposed project 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 by the company is summarized in the paragraphs that follow.

Environmental Management Framework
Environment, health and safety is already an integral part of Transelec''s management framework, as evidenced by the company organizational chart in its annual report. The organigram locates the environment, health and safety function in the operations department, with service to other departments as required. Transelec''s environmental specialist is an environmental engineer, reporting to the operations manager.

Transelec has a progressive environmental policy in place (as of July 2001), which is posted on their website. The company is in the process of adopting ISO 14000 certification, which is expected to take two to three years to complete. The company is in the process of upgrading its environmental/social practices and procedures to reflect Hydro Quebec''s stringent requirements.

Environmental compliance
The Chilean Environmental Law, enacted in 1994 and its related regulations adopted in 1997, govern Transelec’s operations in Chile. The Chilean Environmental Law enjoins developers of high voltage transmission lines and substations to either conduct independent environmental impact studies of future projects or activities that may affect the environment and to submit these studies to the approval of the Comisión Nacional del Medio Ambiente (CONAMA), or to make a sworn statement that its project complies with environmental regulations. CONAMA has the authority to levy certain duties on transmission line developers to protect or restore the environment.

Prior to the sale of Transelec to Hydro Quebec International, Endesa engaged the environmental consulting firm Arcadis Geotechnica to prepare an environmental compliance audit of the company''s facilities. Arcadis selected five substations and one warehouse for detailed review. Arcadis'' August 2000 audit report demonstrated compliance with current environmental legislation (with respect to emissions of particulate matter and noise, disposal of industrial waste, management of vegetation and fauna, and control of dangerous substances including PCBs) and identified a small number of potential environmental contingencies and risks. Although no significant environmental liabilities were found, the audit did identify costs associated with the PCB management program and with the demolition and restoration of a temporary transmission line from Polpaico to Quillota. According to Arcadis, the results of the study can be extrapolated to the remaining transmission facilities owned by Transelec.

During 2001, Transelec audited its transmission substations to satisfy environmental requirements set forth by various governmental institutions. About 80% of the company''s substations were audited. The findings of the previous audit conducted in 2000 were confirmed, and only a few minor and non-material issues related to waste management were highlighted for further attention by the company.

Regarding its rights-of-way, Transelec''s subcontractors inspect each transmission line from two to three times per year for encroachments and for other developments such as soil erosion that could affect operational performance, the environment, or safety. A detailed baseline environmental audit of the transmission lines is planned for this year.

Transelec has several transmission line and substation upgrade projects either approved and underway or in the planning stages. A potential interconnection between the SIC and SING, and interconnections with neighboring countries are under review. A major portion of the current work is the strengthening of the country''s trunk system to accommodate new generating capacity. Transelec has obtained the required approvals from CONAMA for every new project built since the Chilean Environmental Law came into effect. An EIA for the upgrading of the 220 kv Charrua to Ancoa line to 500 kv is currently being processed.

Going forward
Sustainability. Hydro Quebec is a major economic actor in Quebec and is a strong and well-established contributor to economic development, social and cultural life, and environmental programs. The company supports similar economic development by its subsidiaries in emerging markets, including community development in areas where new facilities are built. The IFC project team has held initial discussions with key company personnel to discuss activities for environmental enhancements and community/sustainable development at Transelec. Specific activities are yet to be identified, but Hydro Quebec is proactive in this area. A detailed program for community development will be developed in consultation with IFC.

Management practices. Going forward, Transelec will also be developing procedures, benchmarked on World Bank Group policies and guidelines, for environmental and social screening of new projects and investment opportunities into the corporate business strategy, commercial planning, and bid policy and process. World Bank/IFC environmental and social policies and guidelines will be integrated as part of the legal and other requirements that apply to Transelec''s investment activities. Legal and other requirements include those performance indicators that are required by law or regulation, as well as others that are adopted by the company from industry best practice, World Bank/IFC, etc.

Conclusion & Monitoring

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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