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 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 information submitted by the project sponsor, and site visits by IFC staff. The following potential environment, health and safety impacts of the project were analyzed. - Environmental, health and safety management systems; - Vessel safety and pollution control; - Oil/Hazardous cargo spill prevention and control; - Shipbuilding/Repair yard pollution control and hazardous materials and waste management; - Environmental contamination; and - Employee health and safety.

VSC has presented plans to address these impacts to ensure that the proposed project will, upon implementation of specific agreed measures detailed in an Environmental Action Plan (EAP), comply with applicable environmental, health and safety (EHS) requirements, including: international maritime standards under SOLAS, MARPOL, the International Safety Management (ISM) code, the IMO Dangerous Goods code, Russian Federation shipping-related rules and EHS laws, and World Bank/IFC environmental and social policies and guidelines. The information about how these potential impacts are being addressed by VSC is summarized below. - Environmental, Health and Safety Management Systems VSC has a written corporate safety and environmental policies indicating the commitment to using best practices to ensure the safety of their employees and passengers, as well as the protection of the environment in the conduct of their shipping activities. Objectives include compliance with relevant international maritime codes – IMO, ISM, MARPOL, SOLAS -- and Russian Federation requirements covering EHS aspects of their activities. The company has a structure and organization with the appropriate responsibility and authority to manage EHS matters, and EHS procedures are described in various manuals and other documents. Performance is monitored through a system of periodic inspections and internal audits. Non-conformities and accidents are investigated and corrected, as necessary. Senior management reviews performance results annually and ensures that appropriate adjustments to procedures are made. VSC will certify their EHS management system to ISO 14001 on a schedule to be agreed with the IFC. Activities to be certified will include both fleet and shore-based operations. - Vessel Safety and Pollution Control VSC fleets – both short sea vessels and river cargo and passenger vessels – are designed and operated to meet appropriate and relevant international and Russian Federation safety and pollution control requirements. Because Russian rules require inland vessels to have double hull construction, Russian registered sea and river vessels go beyond IMO marine safety standards in this regard. Safety equipment meets SOLAS requirements for short range sea vessels, and river vessels satisfy the most stringent international and Russian safety requirements currently in force. Vessels are all equipped with tanks and containers for storing ship-generated wastes and effluents – domestic wastes, maintenance waste and oils, oily wastewaters, sanitary wastewaters, recyclable plastics, metals and glass. When accumulated, segregated wastes are delivered to authorized on-shore port facilities for treatment and disposal. Certain vessels can process wastewaters directly on board using installed treatment systems, and can process and dispose of combustible solid wastes (food wastes, garbage, wastewater treatment sludge) using specially designed, on board incinerators. All vessels meet current MARPOL pollution control standards, and new ships are being designed to meet new standards coming into force. The company has all necessary documents to permit operation of the ships with regard to safety and environmental protection. The ships are regularly inspected by government authorities and authorized agents for compliance with safety and environmental requirements in accordance with approved schedules. - Oil/Hazardous Cargo Spill Prevention and Control In accordance with MARPOL, IMO, and Russian requirements, vessels engaged in the transport of oil and hazardous cargoes (bulk fertilizers and coal) have plans and procedures in place for handling and storage of the material, as well as responding to emergencies, such as collisions, grounding, fire, and spills. In addition, these ships are suitably equipped with fire/spill prevention and emergency response equipment and supplies on board in the event of any accident. Crews are trained in fire fighting and hazardous cargo handling and emergency response, and provided with appropriate personal protective equipment. Training includes both classroom training and emergency drills. There were two minor fuel spills caused by VSC ships in the last three years: one at a Turkish port, and the other at a Russian shipyard docking area in 2001 and 2002, respectively. VSC took appropriate clean up actions to minimize the impacts of the relatively small amounts of material released during these incidents. - Shipbuilding/Repair Yard Pollution Control and Hazardous Materials and Waste Management VSC operates several ship repair and maintenance yards that service the technical and maintenance needs of their fleets. The company’s repair facilities comprise of two types: - a large-scale repair yard; and - several smaller scale fleet storage and maintenance depots distributed throughout their areas of operation. The activities of the large repair yard includes: major repairs of ship hulls, pipelines and propulsion and steering systems; cleaning (i.e., sandblasting) and painting of hulls and superstructures; and mechanical equipment maintenance ( involving both metal machining and woodworking). At the repair yard, which occupies a large river-front site in Nizhny Novgorod, the vessels are typically removed from the water to undertake this work. The smaller ship maintenance depots perform regular repairs of deck machinery and engine room equipment, as well as exterior and interior painting, while ships remain afloat or in floating docks. Ship repair necessarily involves the storage and handling of hazardous materials, like paints, solvents, and oils. Repair activities also generate effluents, emissions, and wastes –waste particles from shot blasting, metal scrap, paint wastes, spent solvents, waste oils, discarded containers, other paint contaminated materials, waste wood and plastics, and sludge and waste from ships. Wastes and hazardous materials both must be managed properly to avoid contaminating the environment and potentially harming the health of workers and local residents. IFC’s preliminary review of VSC current environmental, and health and safety (EHS) practices found that there is room for improvements in this area. Not only could improvements in operational practices be made to reduce EHS risks and liabilities at the various repair facilities, but they could also help to save costs through implementation of more efficient processes, and associated waste and energy recovery schemes. By sponsoring independent EHS audits of the repair facilities, IFC will assist VSC in understanding the scale and sources of EHS-related problems, and to set out the options available for dealing with these problems. A key outcome of the exercise will be to develop a detailed EHS Corrective Action Plan (EAP), which lists specific improvements and action items that need to be undertaken, identifies the party responsible for implementation, a reasonable schedule for implementation of these activities, and estimates of costs for each. The EHS audits shall consider repair facilities’ compliance status with respect to applicable and relevant Russian Federation requirements and World Bank Group (WBG) environmental and social policies and guidelines. The review shall also consider and identify opportunities where there is a business case to “go beyond compliance”, such as implementation of pollution prevention and cleaner production approaches, energy efficiency improvements, resource recovery and waste recycling opportunities, and the like. The EAP shall include interim and long-term targets and a timetable for achieving them, together with an indication of the investments and other resources (human, information, etc.) that will be required. - Environmental Contamination Historical operating practices at the repair yards may also have contributed to subsurface contamination of the properties and sediments of the adjacent water bodies. The IFC-sponsored EHS repair yard audits described above will also ascertain the extent of environmental contamination of these areas, and whether any contamination of the properties poses risks to the surrounding communities and environment. The audits shall include environmental sampling and chemical testing plans for each of the sites, focusing on the most critical areas and including appropriate quality control measures. They will determine the extent and level of contamination or damages due to past activities, including the affected environmental media (i.e., soil, groundwater, surface water, sediment, etc.), and make recommendations for further investigation and remediation as part of the EAP. - Employee Health and Safety VSC has an active occupational health and safety program designed to comply with stringent Russian workplace regulations and ensure the safety of their crews and workers. The program includes a set of specific safety and health procedures for ship and shore-based activities. Workplaces are designed with appropriate health and safety protection equipment and systems in place. Personnel are provided with appropriate personal protective equipment, and participate in extensive health and safety training programs covering fire fighting, hazardous work activities, life saving, and medical first aid. Seafarers and shore staff undergo periodic medical examinations. The company and the regulatory authorities both conduct regular inspections of the ships and repair yards to ensure all health and safety requirements and procedures are being properly followed. Job-related accidents and incidents are investigated to prevent reoccurrence.

This ERS contains the full environmental and social documentation prepared for the project.

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 detailed in the EAP produced as a result of the upcoming IFC-sponsored repair yard EHS audit.

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 repair yard EAP, 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.