The sponsor will undertake specific actions to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements, Indonesian 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 will be addressed by the sponsor/project is summarized in the paragraphs that follow. Further information is provided in the attached documentation.
Environmental and social due diligence model for palm oil installations. Verdaine developed a model to facilitate acquisitions of targeted oil palm plantations and crude palm oil (CPO) mills. The process includes environmental and social, agronomic, legal, financial, and other due diligence activity to elucidate the status and valuation of the target acquisitions. Several aspects of due diligence are aimed at elucidating shortcomings in property ownership, the existence and documentation of appropriate land use licenses, and the classification of the land under cultivation is proper for this purpose. Elucidated shortcomings, especially those with significant environmental, social and commercial significance, are addressed in purchase negotiations and contracts.
PT Eka Pendawa Sakti (EPS) acquisition in Northern Sumatra. In June 2000, Verdaine made its first investment in acquiring PT Eka Pendawa Sakti (EPS), a 9 200 hectare plantation located in Kabupaten Tapanuli Selatan, North Sumatra Province. A number of non-compliant environmental and social issues were identified during due diligence for the purchase. Some of these have been resolved including: construction of ground water wells in selected areas to provide potable water for employees and in employee housing; construction of improved housing; elimination of malnutrition among employees’ children attending day care centers; reduction of CPO mill oil losses to wastewater treatment ponds; construction of storage and segregation facilities for pesticides and fertilizers in some estates; and utilization of wastewater effluent and sludge for irrigation and soil amendments in the plantations. Representative, lingering issues, which will be resolved in accordance with the corrective action plan, include: implementation of a comprehensive occupational health and safety program including formal employee training (basic health and safety, job hazards, use of PPE, etc.); elimination of work place hazards (active removal of oil in work areas, covering pits, improving safety railings, isolation of rotating machinery, etc.); mandate use of personal protective equipment (PPE); establishment of fifty (50) meter wide buffer zones along all rivers in accordance with Indonesian law; termination of use of the empty fruit bunch (EFB) incinerator responsible for high concentrations of particulate air emissions that frequently fumigate the mill and operations areas; purchase of specialized equipment required to distribute EFBs in the plantations as fertilizer; construction of a permitted disposal area for municipal type and hazardous waste generated by mill, housing and support operations; comprehensive implementation of biological controls for pests in the plantations; development of a farmer outreach program to improve local benefits from the project (see 5. below); and completion of compensation payments to retrenched employees in compliance with Indonesian law. After acquisition the work force was reduced from 2700 to 1700 workers at EPS. Of the total, 800 were casual laborers that returned to their villages. One hundred employees were compensated in accordance with Indonesian law and EPS’s add-ons by December 31, 2002. The remaining 100 dismissal cases are expected to be resolved prior to the end of second quarter 2003. Under Indonesian law, casual laborers do not receive compensation when their services are no longer required.
PT Sahabat Mewah Dan Makmur (SMM) acquisition, Belitung Island. As a new acquisition the required action items needed to achieve Indonesian and IFC/WBG guideline and policy compliance have not been completed. The issues are typical of the shortcomings encountered in the first acquisition and will require time to resolve. Representative issues that need short-term attention include the following: Verdaine will need to establish fifty (50) meter wide riparian buffer zones as required by Indonesian law for rivers in the property, remove oil palms in the buffer, terminate clearing, and allow natural vegetation to grow; prohibit taking and keeping of fauna on company land; expand road surfacing programs to facilitate transport and to reduce erosion; provide potable water for worker housing; implement integrated pest management activity to understand existing pest species and appropriate control measures with a strong orientation to biological controls and eliminate pesticide spraying according to fixed schedules; distribute EFBs in the plantations to reduce the need for chemical fertilizer; locate and construct a permitted disposal area for municipal and hazardous waste generated by mill, housing and support operations; construct secondary containment for bulk hydrocarbon storage and proper dispensing facilities; modify hazardous materials and pesticide stores to include secondary containment, facilities for cleaning and mixing and disposal systems for wastewater; implement a comprehensive employee training and occupational health and safety program; and institute monitoring and record keeping activities for the mill and plantations. Occupational health and safety deficiencies are acute. There is no apparent formal training program for employees; job hazards have not been analyzed and work place hazards have not been mitigated (e.g. oil in workplaces); employee clothing and shoes are inappropriate for an industrial setting and no PPE has been provided. Process optimization is needed in the mill to reduce the flow of oil to the wastewater treatment ponds and to increase oil yield. Additionally an environmental monitoring program is required for stack emissions and wastewater management and unused treatment pond capacity should be used for used for storm water runoff to aid in erosion control.
Environmental and social issues in future plantations and CPO mill acquisitions. Environmental and social due diligence audits and written documentation are mandatory for all future plantations and mill purchases. These efforts will be modified so that the work product of evaluations consultants is strongly oriented to specific corrective actions required to meet Indonesian regulatory and IFC/WBG policy and guideline requirements. The environmental issues identified will be associated with capital expenditures required to resolve the issues. Both ameliorative tasks and capital expenditures will be prioritized and incorporated into plantations and mill operations planning. The identified social issues will be assessed as to whether the Company can bring the plantations and mills into compliance with IFC/WBG social safeguard policies and Indonesian law through known means and within reasonable time periods. In both cases, definitive corrective actions with mandatory completion dates will be developed to IFC’s satisfaction.
Environmental and social training and development activities for small holders. Verdaine is developing a pilot extension services program to assist smallholders and farming operations adjacent to oil palm plantations. The pilot program will be funded in part by an IFC development facility and in part by Verdaine. The objective of the pilot program is to fine-tune the concept after initial design, preparation and implementation in northern Sumatra. After the pilot program, the program will be extended to all farming operations adjacent to Verdaine plantations. The aspiration of the pilot and subsequent programs is technology transfer that will protect the environment and benefit the farmers and their families by increasing their production and the quality of that production. Farmer training programs will focus on the application of scientific methods of soil management and field crop production, integrated pest management and techniques to identify and understand specific pest species and preferably biological methods to maintain them below population levels of economic significance, identification of specific soil nutrient deficiencies, and related subjects. While the primary focus of the extension program will be on assisting with oil palm cultivation, which many communities adjoining the plantations have undertaken on their own, it will also assist with other crops to avoid dependence on a single crop. It may also look at the need for financing mechanisms for working capital.
Corporate environmental and occupational health and safety management systems development. Environmental, social and on the job occupational safety and health management systems are required for the existing acquisitions. Once such systems are in place these systems will have a positive impact on future acquisitions as previously trained and oriented employees can be used to rapidly implement Verdaines’s approaches in newly acquired operations. Accordingly, Verdaine will develop a corporate environmental management policy and institute an implementing system to include a strong orientation to occupational health and safety and accident prevention. Verdaine will obtain certification of the system and its implementation on each company owned plantation and associated milling and ancillary operations in accordance with the attached corrective action plan.
