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 that can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. The review of this project included evaluation of technical and environmental information submitted by the sponsor, the business plan, a physical inspection of several facilities: existing Sharja operations, the Zeblyaki-2 logging operation and chip supplier situated 35 kilometers west of Sharja, and two small sawmills in Sharja. The following potential environmental, social, health and safety impacts of the project were analyzed. - Site acquisition, cultural property and sensitive natural habitats; - Sustainability of forests and wood chip supply; - Industrial hygiene, and occupational health and safety; - Emissions to the environment (e.g. air and water, solid waste and toxic/hazardous materials management) in existing and new operations; - Employment and the local economy; and - Environmental Management System (EMS) for existing and planned operations.

The sponsor has presented plans 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, host country 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 corrective action plan (CAP). - Site acquisition cultural property and sensitive natural habitats. The 119.5-hectare project site is located in north central Sharja, in a previously disturbed mixed industrial and residential area. It is bordered on the north and west by forest and contains no apparent cultural property or sensitive natural habitats. Kronostar will carry out an environmental site audit to identify any environmental liabilities from past ownership and operation and environmental issues that may affect expansion and future operations. Prior to renovation or removal of existing, abandoned structures each will be inspected for asbestos containing building materials. Renovation or removal will then be managed in accordance with inspection findings. The sponsor will provide copies to IFC of all construction and operations permits for new or renovated installations. - Sustainability of forests and wood chip supply. The Swiss Krono Group (SKG) has extensive experience in sustainable forest management in its existing European operations. Kronostar is committed to ensuring that all production forests under its management and control will obtain independent certification of sustainable forest management practices within three to five years, in compliance with the World Bank Group's policy requirements. The World Bank Group will also assist, through other private sector linkage programs and World Bank institutional strengthening support, in improving harvesting practices and forest management more broadly in this region of Russia. - Industrial hygiene, occupational health and safety. The existing fiberboard plant does not appear to meet occupational health and safety requirements of the EU or the World Bank Group. Quantitative process equipment emissions, workplace air quality, noise levels, and accident records are not available. Housekeeping in production and storage areas is poor and workplace noise levels in some areas are high. Kronostar has committed to upgrade the facility, employee training and related industrial hygiene aspects. These modifications in physical plant and operations will be aimed at achieving consistency with other SKG facilities and their strong orientation towards achievement of zero accidents. Kronostar will conduct an occupational health and safety audit of the fiberboard plant to identify existing issues and to facilitate prioritization of required corrective measures to bring the facility into compliance with other SKG operations. Kronostar will hire an occupational health and safety manager and place coordinators in each plant to assist with this program. This team will be charged with implementing recommendations from the audit and facilitating the transition described above. Accident frequencies and severities will be monitored closely and training will be adjusted to reflect the findings of collected statistics, strengthening education and accident prevention programs. - Emissions to the environment in existing and planned operations. SKG generally owns and operates clean, safe industrial operations. SKG fabrication plants could well be considered models for informed environmental management because they are largely automated and worker exposures are minimized. For example modern MDF manufacture and associated formaldehyde resins must comply with the E-1 standard of residual formaldehyde of <10mg/cubic meter of dry wood fiber. SKG plants yield products with formaldehyde residuals of <5mg/cubic meter. The planned MDF production line will be a copy of SKG’s other European plants. It will be equipped with state-of-the-art process technology, pollution controls, fire detection and suppression systems, and specific refinements gained from experience in other operations. In the manufacturing process wood is chipped, washed and fed to the digester. Particulate and other air emissions are captured in bag filters and cyclones. Process steam boilers will be partially fired by wood dust recovered from the process and external saw dust purchased as fuel. Kronostar will produce MDF board in a continuous, enclosed pressing line that will meet or exceed E1 workplace standards for process emissions. All process wastewaters will be collected, treated and recycled within the plant. Similarly, storm water from roofs and parking areas will be captured, treated, and recycled. Air emissions to the environment, workplace air quality and ambient air quality concentrations will comply with Russian regulatory limits and IFC guideline limits in mg/Nm3. - Employment and the local economy. Kronostar’s Sharja site was once occupied by a state-owned enterprise, AOO Sharjadrew, which had 4,500 employees at the height of its production. In 1992, the company was privatized. By 1997 the company was virtually bankrupt, when all but an estimated 300 employees of the fiberboard plant were retrenched. Kronostar currently employs 300 in the actual fiberboard operation and another 150 in construction and other activities. By spring of 2003, the Company plans to employ approximately 450 new workers in the two plants. At full site development, Kronostar estimates that 1,000 workers will be employed at Sharja. Kronostar’s basic industrial activity will stimulate support industries and existing business and create additional employment opportunities in the Sharja Region and Kostroma Oblast. - Environmental Management System (EMS) for existing and planned operations. Conversion of existing operations to the SKG standard will require some time, attention, and investment. To facilitate the transition and maintenance of achieved goals, Kronostar will develop and implement an environmental policy and an implementing Environmental Management System (EMS). Kronostar staffing will include a professional charged with translating policy into action, implementing the EMS, rectifying issues identified during the environmental site audit, and promoting quality assurance activities to ensure adequate performance of all component facilities. Kronostar’s senior management will publicly endorse the policy and will adjust employee job descriptions and incentive programs to incorporate environmental responsibilities. The EMS will address all project activities including wood supply, suppliers’ environmental and safety performance, and the design and operation of the planned resin formulation plant. Kronostar will undertake an education campaign to communicate the objectives and requirements of the program to all employees and to members of the supplier network.

The attached supporting document (CAP) provides further details of environmental and social issues and ameliorative measures that will be institutionalized as part of this investment project.

Accordingly, IFC concludes that the proposed project will meet the applicable World Bank/IFC environment and social policies, environmental, health and safety guidelines, and Russian Federation environmental regulatory requirements upon successful implementation of the agreed mitigation measures described above and in the Corrective Action Plan (CAP).

IFC will evaluate the project's compliance with applicable environmental and social requirements during the lifetime of the project by reviewing annual monitoring reports (AMRs) prepared by the sponsor for the project covering: - the status of implementation of all ameliorative measures described in the ERS and contained in the Environmental and Social Corrective 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 analytical programs. Periodic site supervision visits will also be conducted by IFC representatives to evaluate on-the-ground performance.