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 appraising technical and environmental/social information submitted by the project sponsor, including the original Environment Impact Study prepared for the project and submitted to the Panamanian environmental authorities in April 1998, an independent environmental and social impact assessment conducted for the Inter-American Development Bank by Halcrow Group (September 1998), field visits to the operating water intake, pipeline and WTW facilities, and meetings with APSA and IDAAN. The following potential environment, health and safety and social impacts of the projects were analyzed. Raw water resource use and management Potable water treatment technology and finished water quality Sludge management and disposal Hazardous materials management and emergency response Facilities site selection, land acquisition and social impacts Low-income users ability to pay, and Employee health and safety

The sponsor has presented plans to address these impacts to ensure that the proposed project will comply with the environmental and social requirements -- Panama laws and regulations and the World Bank/IFC environment and social policies and the environmental, health and safety guidelines. The information about how these potential impacts are being addressed by the sponsor/project is summarized in the paragraphs that follow. Raw Water Resources Use and Management. Created to supply water to the Panama Canal, Lake Gatun is the only viable water resource available to APSA suitable to produce water for potable use. Groundwater sources are contaminated with metals and nutrients. The largest river in the area, the Caimito, is polluted from non-point source agricultural run-off generated primarily by the intensive pig farming in the drainage area. In cooperation with the Panama Canal Authority (ACP) and ARI, the Panamanian government authority charged with managing Lake Gatun, IDAAN directed APSA to use this strategic water resource for the project. ACP coordinates with ANAM, the Panamanian environmental regulatory authority, to protect the Lake Gatun watershed through the integrated management and sustainable development of the natural resources in the region, and both authorities have formally authorized APSA to withdraw raw water needed for the Concession.Navigation water demand -- approximately 2000 mgd (40 ships per day each requiring 50 mgd to pass through all of the Canal’s locks) -- represents, by far, the largest use of the Lake’s water resource. Even considering periods of drought and temporary deficits in inflows to the Lake, the addition of APSA’s abstraction of 20 mgd is not expected to have a significant impact on the overall integrity of the resource according to studies carried out by the ACP. What’s more, IDAAN and the ACP have indicated that, in the event of temporary severe deficits in Lake supplies, potable water demands and Canal navigation demands will be appropriately managed in the interests of meeting both potable water supply needs and Canal operating requirements.The raw water quality of the Lake is good, with almost all parameters falling within the limits of acceptable drinking water quality standards. Only turbidity, iron, and fecal coliform bacteria counts can occasionally be high. Elevated turbidity is caused by periodic algae blooms that may occur, and iron levels are naturally occurring. Neither parameter directly affects human health. The presence of coliform bacteria suggests some sewage contamination from the dispersed rural settlements that surround the Lake catchment. Potable Water Treatment Technology and Finished Water Quality. APSA’s Laguna Alta WTW began operation in September 2002, and is treating water to meet both Panamanian and WHO drinking water standards. Treatment processes include aeration, coagulation and flocculation (using lime and aluminum sulfate), clarification by dissolved air flotation (DAF), sand filtration, and chlorination. An optional, pretreatment step – a series of roughing filters -- is available at the water intake to partially reduce turbidity in the event that the raw water levels in the Lake exceed 60 NTU. Biwater and others have successfully used these water treatment processes throughout the world for reliably producing potable water to host country and WHO standards. Sludge Management and Disposal. Water treatment sludge is generated principally from the DAF process and filter backwashing, and in relatively small amounts (approximately 1 cu. m. per day) owing to the relative high quality raw water being treated. Because the sludge contains mostly precipitated water treatment chemicals with small amounts of inorganic salts, it is considered non-hazardous. After thickening at the Laguna Alta WTW, sludge is transported by truck to one of two nearby licensed municipal landfills for disposal (i.e., the Chorrera Municipal Waste Disposal site and/or the Cerro Patacon Municipal Waste Disposal site). Hazardous Materials Management and Emergency Response.. The only hazardous chemical of concern used by APSA is chlorine gas, which is stored in a secured building in proprietary containers at the Laguna Alta WTW. Although unlikely, an accidental release of chlorine gas could present a potential risk to any persons that might be nearby, but the predominantly rural nature of the surrounding area mitigates against this being a serious concern. APSA relies on the considerable operational experience of Biwater who have ensured that proper arrangements are in place for chlorine storage and handling. Consistent with international best practice, leak detectors are provided in the chlorine room, which is also fitted with evacuation fans to ventilate any released gas to the ambient atmosphere. A proprietary automatic emergency safety shower and eye wash system for employees is placed outside the chlorine room.APSA has established emergency response procedures as part of the operational Health and Safety Manual the set out actions to be taken for foreseeable accident and security considerations, including communications with local authorities and emergency response bodies, medical aspects and first aid, incident reporting and investigation, and employee training on the nature of chlorine hazards and how to react in an emergency. Facilities Site Selection, Land Acquisition and Social Impacts. The raw water intake works and the cross-country pipeline route to the Laguna Alta WTW are located in a very rural, sparsely populated area used primarily for small-scale livestock grazing. Previously undeveloped land, neither the intake works site or the WTW site had people living or structural assets located on them. APSA selected the intake site consistent with the constraints established by IDAAN to have it be located along the shores of Lake Gatun. The location of the WTW and raw water pipeline route were influenced by the need to avoid sensitive environmental areas and settlements, as well as to provide sufficient elevation to allow for gravity flow of the treated water to the IDAAN pre-determined distribution system connection point at Nuevo Chorrillo. The treated water pipeline route was selected to take advantage of topography and existing road rights-of-way (ROW) to the connection point. Along both pipeline service corridors, the ground surface was appropriately reinstated and revegetated. In areas along road ROWs where people’s property was temporarily affected during construction activities all disturbed ground was returned to at least the same quality as the original conditions. This variously involved allowing natural plant revegetation, grass seeding, planting shrubs, and reconstructing drainage channels, small bridges and accesses to adjoining residential properties. In one case, APSA dismantled a dwelling under construction, and rebuilt the structure in a new location acceptable to the owner. None of the affected areas or properties had any archaeological or historic significance.APSA acquired the water intake and WTW sites through a fair, realistic, market-based transaction with the landowners. All property owners along the pipeline routes received some form of compensation for use of their land. APSA also reached market-based agreements for compensation related to construction access to most of the property owners affected by the installation of the pipelines. Of the 43 individual owners affected along the 20 km route, APSA reached compensation agreements with 38. IDAAN resolved the issues with the remaining 5 owners through compulsory land access and provision of compensation based on the economic impact of the temporary disturbance established by Panamanian law. No people were physically resettled, nor did anyone experience any economic displacement for the use of the land to construct the pipeline portion of the project. There exists no outstanding disputes or claims involving any property owners or other project-affected peoples in regard to this project.As part of the Panamanian Environmental Impact Study process, IDAAN and APSA undertook a number of public consultation activities, including publication of announcement in the daily newspaper in June 1998 regarding the proposed scheme, public disclosure of the EIS Report, and the conduct of a series of ten public consultation meetings in 1998. No objections were raised during the consultation and disclosure process, and there was much support for the project because of the increase in reliable water supply that was expected. Low-Income Users Ability to Pay. According to a recent World Bank study of Panama water and sanitation services, IDAAN’s monthly water bills are affordable to all but those households below the extreme poverty line (less than 5% of the population live in conditions of extreme poverty). Currently, a household just at the extreme poverty line assigns on average less than 3% of its monthly income to water charges. Notwithstanding, for many persons in this group (i.e., those that the government regards as “social cases”), the government subsidizes payment of water bills. Eligible households have their entire water bill paid directly by the Ministry of Health to IDAAN, with the determination of eligibility is largely at the discretion of IDAAN. Employee Health and Safety. APSA has implemented an employee health and safety program consistent with Biwater’s corporate health, safety and welfare policy statement. Staff receive training on safe work practices, and a comprehensive set of health and safety procedures that address fire protection, medical emergencies, and accident reporting are in place. In addition, special hazards associated with proper manual lifting and handling, machinery and equipment safety, and safe driving are also addressed.

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.

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 ongoing performance of project-specific environmental, health and safety activities as reflected in the results of periodic and quantitative sampling and measuring programs. Periodic site supervision visits will also be conducted.