IFC requires that this document be 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 consisted of appraising technical and environmental and social information submitted by the project sponsor and a visit to Company operations in Mykolayiv. The following potential environment, health and safety and social impacts of the projects were analyzed. - Systematic management of quality and food safety, environment and occupational health and safety; - Sustainability and quality of potable water supply; - Electric power supply; - Wastewater management; - Solid waste management; - Air Emissions; - Use of Refrigerants; - Occupational Health and Safety; - Sandora farming operations; and - Technical and material support for independent supplier farms.

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 World Bank/IFC environment and social policies and environmental, health and safety guidelines. Information about how these potential impacts will be addressed by the sponsor/project is summarized in the paragraphs that follow. - Systematic management of quality and food safety, environment and occupational health and safety. Sandora management is strongly committed to institutionalizing a systematic approach to management of critical business processes, developing technical and business metrics that are suitable for management and production teams, and fine-tuning an integrated approach to production planning. The sponsor is engaged in an ongoing effort to obtain ISO 9001 certification, which is expected in the third quarter of 2004. Subsequently, Sandora will integrate Hazard Analysis and Critical Control Point (HACCP) and other specific objective programs into the ISO 9001 foundation. - Sustainability and quality of potable water supply. Mikolayiv relies exclusively on ground well water for all water needs. There are 11 ground water wells situated in two distinct aquifers. One group of wells (5) extracts water from n aquifer situated at 60 meters (TDS is ~2000 mg/l) and the other six (6) from an aquifer situated 80 at meters (TDS is 3850 mg/l). The company currently extracts ~2000 m3/day and has a government permit to extract as much as 16,000 m3/day. To ensure high quality water for food products and manufacturing, ground water is demineralized in reverse osmosis (RO) units. RO water is used for all contact with processing machinery and used to blend/dilute fruit drinks. Mikolayiv will soon replace the one of the existing 5 m3/hour RO plant with a higher capacity unit. Daily analyses are carried out for raw and finished water utilized in plant processes. The water quality-sampling program dictates collection and analysis of water samples every twenty-four hours. Analyses show that aside from highly mineralized raw well water there are no other concerns. RO water is also used for the boilers after secondary demineralization with an ion exchange unit to further reduce solids content to the specification required by the boiler manufacturers. Water for the Crimean operations is provided from a good quality local ground water resource. The factory consumes roughly 200-300 m3/day. When the new 20 m3/hour RO plant at Mikolayiv is installed, the existing 5 m3/hour RO plant will be sent to Crimea to ensure high purity water is available for all food products. - Electric power supply. Sandora purchases electric energy from the national grid for both Mykolayiv and Crimean operations. - Wastewater management. Collected wastewater from Mykolayiv operations is discharged to the plant sewer system and then to the Municipality of Mykolayiv sewer system and associated wastewater treatment facility. Liquid waste is medium strength and payment for treatment is based upon a unit charge/m3. Wastewater from Crimean operations is managed without incurring municipal utility charges. Collected process and fruit washing liquids along with sewage are stored in a 250 M3 tank then pumped ~ 2 Km to a 2000 m3 facultative pond; effluent from the pond is used for land application of a 60 ha agricultural area. - Solid waste management. Solid organic waste from fruit and vegetable processing is transported offsite for use as animal food. Additionally, a new pectin factory is under construction in the vicinity of Kiev and has expressed interest in purchasing all of Sandora’s apple organic waste. Other solid waste is handled according to its inherent qualities. Waste paper and carton packaging from Tetrapak machines along with plastic waste is sold to a state licensed company that processes such material for other uses. Waste fluorescent lamps, which contain mercury, are also sold to another state licensed operation. Fruit pits were previously sold exclusively to villagers for fuel but with the reemergence of specialized companies that process fruit pits (existed in Soviet times but collapsed along with the Soviet Union), sales of these materials are increasingly going to such companies. These specialized companies then process pits for several applications. The hulls are cracked and the nuts ground and processed to manufacture fruit essences and oils and the hulls are converted to activated charcoal that is used in food, cosmetic and other applications. OOO ABA from Odessa purchased Mykolayiv's fruit stones in 2003. Remaining, limited waste is transported to the municipal disposal site for disposal. In Crimean operations, local villagers purchase organic solid waste for animal food. Nikitsky Botanical Gardens purchases fruit stones (purchased ~5 tons of raw apricot fruit pits in 2003), which are processed for essential oils and flavors and the hulls are converted to activated charcoal. A local vodka manufacturer has expressed interest in purchasing all of Sandora’s fruit stones for conversion to activated charcoal. - Air Emissions. Sandora’s Mykolayiv plant has two old style Soviet era boilers with ~88% efficiency and one new German unit with ~93% efficiency. All units are gas fired, well maintained and operated by a competent boiler technician. The vendor for the German unit visits the operation and fine-tunes the boiler on a semiannual basis. Air emissions from the units are in compliance with Ukrainian regulatory and IFC guideline limits for NOx, particulate, and SO2. The Crimean operation has two small diesel fuel-fired boilers that will be converted to gas in 2005. Current air emissions comply with Ukrainian regulatory limits but exceed IFC guideline limits for particulate and SO2. Conversion to gas fuel will rectify the problem. The existing liquid fuel storage tank will be emptied and dismantled at the time of fuel conversion. - Use of Refrigerants. Sandora uses FreonTM R-22 for refrigeration purposes. The Montreal Protocol allows R-22 with mandatory, complete phase-outs for this material by 2030. R-22 has relatively low global warming and ozone depletion potential. For current investments in refrigeration systems, R-22 is acceptable. However, for longer-term investments in such equipment, Sandora will evaluate other refrigerants in new facilities (e.g. ammonia) as opposed to continuing investment in R-22. - Occupational Health and Safety. There are many requirements for health, sanitation and disease prevention and treatment for workers in Ukrainian food manufacturing operations. Additionally, state requirements are stringent for occupational health programs. Sandora employs an oversight manager and two safety staff including one industrial hygienist who are responsible for compliance. Accident statistics are good with only one lost time accident reported in the past 2.5 years. Signage and associated floor markings to segregate process areas in the factory are used extensively; and fire detection as well as fire suppression equipment is deployed in accordance with state requirements. Employee training requirements are extensive and records are maintained for compliance with training requirements. When the ISO management system is well integrated in 2005, the OH&S program will be integrated to a certifiable level in accordance with IFC OH&S guideline requirements. Sandora farming operations. Sandora has two agricultural entities that grow tomatoes and agricultural products that are converted to purees for juice manufacturing operations. These farming activities benefit from state extension services available to and used by private farming entities. Each farm has an assigned agronomist who is responsible for preparation of production records listing specific inputs (fertilizers, pesticides, etc.) for the crops and submits this documentation to the state agricultural station. The state Plant Protection and Inspection Services controls the use of pesticides on food crops. Using each farm agronomist’s data and periodic inspections, the state service provides a Sanitary Certificate for each crop that, in accordance with GOST regulations, certifies that the crop is free of radiation, and hazardous chemicals. When the agronomist receives the Sanitary Certificate he issues a Quality Certificate. Both documents plus a physical inspection of incoming crops are required for product acceptance at Sandora facilities. - Technical support for independent supplier farms. Each autumn Sandora commences production planning efforts to define raw fruit and vegetable needs for the following year. Sandora signs a letter of intent with selected private fruit growers in the fall. After spring blossoming Sandora staff make a number of inspections and maintain close telephone contact with the farmers to facilitate making reasonable predictions on crop volumes. Yields are calculated in April and indicative needs are spelled out for the farmers. Eventually, contracts are signed for the crops. Sandora’s pre crop financing program entails providing technical support and money to the farmer for seed, fuel and oil, fertilizers, and other inputs needed for the crop. Sandora doesn’t provide extension services per se but facilitates knowledge dissemination and associated matters to benefit the farmer through programs such as the Heinz seed sales program and similar activities aimed at improving the quality of raw materials coming from local farms. All farmers must submit a State Sanitary Certificate and a Quality Certificate for each crop delivered to Sandora.

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.

IFC will evaluate the project's compliance with the applicable environmental and social requirements during the lifetime of the project by reviewing annual monitoring reports (AMRs) prepared for the project covering: - the status of implementation of specific ameliorative measures discussed in the text of the ERS above and - ongoing performance of project-specific environmental, health and safety and social activities as reflected in the results of periodic and quantitative sampling and measuring programs. Periodic site supervision visits will also be conducted.