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, environmental and social information submitted by the project sponsor, and sites visits to several manufacturing sites in Colombia. The following potential environment, health and safety and social impacts of the projects were analyzed. - Environmental, health and safety management; - Emissions to air and water; - Use of raw materials and energy; - Hazardous materials management; - Community development and social programs. In addition, polychlorinated biphenyls (PCBs) were considered in relation to Propal’s Yumbo site.

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 - the 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. - Environmental, health and safety management – Propal The Propal paper mills when acquired by Carvajal were in a poor condition which resulted from years of financial difficulty. Propal’s management team has recognized many of the sites’ environmental shortcomings, and prepared investment projects to address these issues. However, other shortcomings, particularly of a housekeeping nature and individually of a small nature, but collectively potentially significant, should also be included in the improvement plans. In order to provide a framework within which an environmental and safety improvement program should operate, Propal will establish an environmental and health and safety management system for both sites, with the objective to achieve certification to internationally recognized standards such as ISO 14001 environmental management and OHSAS 18001 safety management within three years. As a first stage, a comprehensive EH&S audit will be undertaken and a comprehensive and timed environmental and safety improvement plan will be developed. - Environmental, health and safety management – Carvajal Companies Carvajal has a corporate environmental management team whose activities include ensuring that necessary environmental licenses and permits are in place, monitoring developing Colombian environmental legislation, publication of the monthly in-house environmental bulletin and development of group-wide technical initiatives. Day to day responsibility for environmental management is devolved to individual production sites, and review of a number of manufacturing sites in the Cali area showed variations in the quality of environmental management. Carvajal will develop a group-wide environmental and safety management system which will have the objectives to ensure that all sites obtain certification to ISO 14001 and OHSAS 18001 or equivalent within three years, and reach the environmental and safety management standards achieved today at Carvajal’s best sites. This group system will extend to all manufacturing sites, not just those in Colombia. - Emissions to air Emissions to air result from boilers and fired heaters used at the printing and packaging sites, an incinerator at the packaging site, evaporation of solvent from printed materials, and from utility and recovery steam boilers and lime kilns at the Propal paper sites. Printing and packaging boilers and heaters are small, and have very low emissions to air. At the Flexa plastic packaging printing works, solvent (ethyl acetate and ethanol) which evaporates in the ink dying process is exhausted from the factory, without recovery or removal from this exhaust. There is presently no Colombian legislation to limit emission of organic solvents, though legislation is anticipated. Solvent emissions are not measured, but are likely to exceed IFC guideline levels. Carvajal will implement an emissions reduction program, and expects to incinerate the solvent-laden exhaust gases, to ensure that emissions of VOCs meet IFC and any anticipated future Colombian requirements. The incinerator is used to burn printing ink residues. Particulate emissions are measured and are within local and IFC requirements. The incinerator is operated in accordance with the terms of a license which prohibits the incineration of, among other substances, compounds containing heavy metals, chlorinated hydrocarbons and other chlorine-containing compounds including PVC. Hence, emission of heavy metal compounds or dioxins are not suspected. Emissions from Propal’s boilers and kilns are measured: emissions of NOx and SO2 are well within local and IFC limits. However, emissions of particulates from all sources exceed IFC’s standards, with emissions from power boilers 1 &2 at Yumbo and kilns at both sites being particularly high. Propal will develop and implement plans to reduce these emissions to meet IFC and local requirements. This may require addition or upgrading of precipitators, but before this work is done, Propal will conclude work on the feasibility to revise its boilers at Yumbo to burn additional biomass in the form of treated waste-water treatment plant sludge and bagasse waste which is currently landfilled. - Emissions to Water Emissions to water from at least some of Carvajal’s Colombian plants do not meet IFC’s requirements for discharge to surface waters, which are based on quantitative emissions limits. Carvajal will review effluent standards from all its sites, and where these exceed IFC limits will, after considering water reduction opportunities install effluent treatment systems to ensure that IFC’s standards are met. The effluent discharged by Propal also does not meet IFC standards, and the paper mills have higher than best practice specific water consumption. Propal is currently working with a consultant to devise water reduction and recycling strategies and then to upgrade the effluent treatment systems to meet IFC and local requirements. Both paper mills use elemental chlorine bleaching of pulp. Studies undertaken in the early 1990s by previous owners of the mills found no evidence of dioxins or furans in river water or sediment, and material published by UNEP has confirmed that the potential for unintentional production of dioxins/furans is less with bagasse-based pulp than with wood-based pulp. Propal will repeat monitoring for dioxins/furans in effluent, the receiving rivers and river sediment. Within three years, Propal will substitute 50% of the bleaching chlorine with chlorine dioxide. The monitoring will then be repeated; if it shows elevated levels of AOX, dioxins or furans in effluents, then Propal will implement measures that will reduce the AOX concentration in effluent to IFC and local requirements, and the concentration of dioxins/furans to international best practice levels. - Use of raw materials and energy Sites visits suggested that opportunities exist cost-effectively to reduce the consumption of energy and raw materials in production processes. Reduction in use of these resources will be included as objectives of the environmental management systems. Work in this area is ongoing: one site has documented case studies of this work, and Propal has an energy efficiency program in place and sees work in this area as part of an ongoing cost-reduction program. - Hazardous materials management. Considerable control is exercised in Colombia over access to and use of hazardous materials, because many hazardous materials used in industry are also consumed in production of narcotics. Carvajal therefore has been required to institute strict controls over access to hazardous materials. Comprehensive written procedures on hazardous materials management exist; however at the Propal sites, further work will be undertaken to provide secondary containment around acid and alkali bulk storage tanks. - Community development and social programs Carvajal and Propal are active in these areas, though support provided respectively to the Carvajal and Propal foundations. The Carvajal family established the Carvajal Foundation in 1961 and donated to it 35% of the stock of the company. The Carvajal Foundation now has 80 full-time employees, and works in a variety of social programs including - Social Construction / Housing, - Basic Services, - Entrepreneurial Development, - Education, - Health, - Arts and Culture, and - Environment & Social Management, in the Aguablanca barrio of Cali. Three centers in Aguablanca have wholesale markets (where small shop-owners can buy good at wholesale prices), clinics, a construction materials depot, branches of Women’s World Banking and other financial institutions, community centers, computer labs, schools / Montessori pre-schools, movie nights and other activities to enhance the economic and social development of the Aguablanca community. The Propal Foundacion was established in 1991 (i.e. before Carvajal’s ownership of Propal) and in a similar way provides basic services to the populations around its factories in Yumbo and Caloto. The main activities in Caloto the are the operation of clinic and food wholesaling. The clinic has 18/20 full time doctors providing general practice care, and a range of more specialized services. Around 800 patients are treated monthly, and the clinic has links with hospitals including some in the USA. Health care provision is important in Caloto which is a remote, rural, sugar growing area with problems of HIV/AIDS, alcoholism, malaria and leprosy among others. The wholesaling business provides food and basic goods on a cash-basis to small shopkeepers who then sell on to the community. The small shopkeepers have reliable supplies of goods, do not have to travel to Cali to obtain them and pay lower prices than otherwise and pass savings to customers. The foundation also has clean water and SME development initiative, which are linked to providing services required by the mill and other local factories. - Polychlorinated Biphenyls (PCBs) Propal has identified the presence of PCBs in transformers and power factor correction capacitors used at the Yumbo site. Some of the PCB has already been removed by a specialized contractor and sent to France for destruction in a high-temperature incinerator meeting EU emissions standards. Remaining PCB-filled electrical equipment is monitored for leakage, and a phase out program complying with IFC’s PCBs guidelines is ongoing.

The attached Environmental Action Plan provides further details of mitigation of environmental and/or social issues.

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.

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 activities as reflected in the results of periodic and quantitative sampling and measuring programs. Periodic site supervision visits will also be conducted.