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 environmental and social review procedure. Because IFC recently reviewed the Group’s railway operator activities (see IFC Environmental Review Summary for Russkiy Mir dated 12/16/2003) and found them to be compliant with applicable Russian laws and regulations, including the technical standards of the Ministry of Transport, and IFC environmental requirements, this second review focused on the construction and operation of the Taman terminal. For the fuel oil and LPG terminal complex on the Taman Peninsula, our review consisted of appraising technical, environmental, and social information submitted by the Group, including the environmental impact assessment documents prepared for submission to, and approval by, the relevant Russian national and regional authorities, and field visits to the terminal complex site by IFC staff. Environmental and social issues include: - Siting and land use rights; - Construction impacts; - Hazardous materials management; - Emergency preparedness and response; - Terminal pollution prevention and waste management; - Navigational safety; - Community engagement; - Cultural heritage; - Employee health and safety; and - Environmental management systems.

The Group, in coordination with the Krasnodar regional government authorities, has presented plans to address these issues to ensure that the terminal complex portion of the project will, upon implementation of mitigation measures described below, comply with applicable Russian laws and regulations and IFC environmental and social requirements. The Group is developing appropriate environmental, health and safety management systems consistent with IFC’s Hazardous Management Materials Guidelines and necessary to manage the new Taman Project activities. In addition, the Group continues to demonstrate that their railway-related operations comply with applicable Russian railway and IFC requirements. The detail about how these issues are addressed by the Group and other responsible parties is summarized in the paragraphs that follow. - Terminal Project Siting and Land Use Rights The 164 hectare site where the fuel oil and LPG terminal complex is to be built is one of a group of seven parcels, the land use rights of which have been (or are being) assigned to various private investors that are collectively known as the Iron Horn Port area. The Iron Horn Port Development Master Plan developed by the Russian Federation Ministry of Transport in 2003 calls for the establishment of a state-controlled Iron Horn Port Authority to provide and operate marine and port services to each of the transshipment complexes. These facilities and services would include: - Approach channel, maneuvering areas, anchorages, and navigation aides; Pilotage, berthing tugs, mooring services, weather reports, radio communications; - Support fleet and marine special unit; - Customs and border control facilities; and - Railway access and station. The Group has a 49-year lease to use the Taman Project site with the Krasnodar regional governmental authority. There were no houses or dwellings on the site, nor was it used by anyone for livelihood support or to sustain their standard of living. The nearest inhabited area is the small village of Volna located on the coast approximately 3 km from the facilities. The somewhat larger village of Taman is situated about 10 km north of the terminal site. A designated public recreation area (Fakel camping area) is located 1 km along the shore from the loading jetty. The coastal zone of the Black Sea extending 500 meters into the water from the shoreline of the Taman peninsula is designated as a protected water resources area owing to the favorable fish spawning and breeding conditions and its utility for commercial fishing activities. Russian legislation imposes special pollution control requirements to protect the water quality of these coastal waters. It is important to note that The Group’s fuel oil and LPG ship loading activities will be conducted outside of this zone. The Taman peninsula lies in a seismic zone classified as grade 8 on the MSK scale. To prevent coastal erosion and landslides in the unlikely event of such an event, appropriate coastline protection structures are included in the complex facilities’ design. Although there is no evidence of dangerous geological processes having actually taken place at the site, all facility structures will be designed to higher grade 9 protection standards. The Group’s terminal is not the first terminal complex to be constructed at the Iron Horn Port area. TOAZ, the largest Russian ammonia producer, is completing the construction of an independent ammonia transshipment complex adjacent and about 300 m to the east of the Taman terminal site. The TOAZ complex includes railcar unloading facilities, two storage tanks, and pipelines and a dedicated offshore loading jetty. The assessment of the impacts of the Taman terminal complex takes into account the impacts of pollution releases, both continuous and accidental, contributed by the ammonia terminal operation (see below). - Terminal Construction Impacts The principal environmental impacts from construction of the fuel oil and LPG terminal complex are on marine ecosystems in the areas where the pier and jetty structures and in particular, the marine support fleet harbor area will be built. An increased quantity of suspended solids in the water column will cause temporarily deteriorated living conditions for fish stock, plankton and benthic communities. Upon completion of construction, marine populations should return. Where possible, marine-related construction work should be limited during fish spawning season to minimize these temporary impacts. Other environmental impacts from construction – fugitive dusts, soil erosion, noise, waste management, increased vehicular traffic – will be controlled to acceptable levels by the EPC contractor through application of standard construction environmental controls, which will be required in EPC contract documents. In accordance with Russian environmental requirements, land disturbed during construction of tank farms and associated facilities will be rehabilitated and restored by the EPC contractor through re-grading with the original topsoil and planting of indigenous vegetation. In addition, the Group has made provision to repair any damage to area roads (i.e., the roads to Taman and Volna from the site) caused by construction vehicles. - Hazardous Materials Management The Taman Project will be capable of off-loading from railcars as much as 3 million tons of fuel oil (two grades) and 1 million tons of LPG (propane and butane) per year, and loading these products onto ships for further export to markets in Turkey and Europe. Each product has dedicated and separate unloading, temporary tank farm storage, and loading facilities, and both are considered hazardous or dangerous materials by Russian and UN regulations owing to their flammability and explosion characteristics. Hazards may arise because of accidental leaks and spills from handling and storage of these products. In the case of fuel oil, spills or leaks could potentially contaminate the local marine environment and coastline, as well as cause local fires. Because of its high volatility, spilled or leaked LPG to the ground or water environment will eventually vaporize. Notwithstanding, tank or pipeline ruptures could lead to combustible gas jets and vapor clouds, and even explosions. General measures for minimizing environmental damage in the event of accidents at the terminals include enhancing respective equipment reliability, localizing spills, and providing multi-level environmental protection systems around the most significant impact areas. Located in the center of the site and sufficiently distinct and separated from the LPG terminal area, the fuel oil terminal area will feature secondary containment for railcar unloading and the storage tanks (in the form of concrete floors and walls) to prevent release to the environment of any oil that might be leaked or spilled. An above-ground insulated pipeline provided with automatic shut-off valves will carry oil to loading arms at the ship tanker berthing area at the jetty. In case of a pipeline rupture or leak, all surface drainage will be collected and contained in a storm drainage system, thereby preventing oil from reaching the Black Sea. Contained stormwaters contaminated with oil will undergo physico/chemical treatment to meet the stringent standards for discharge into the Black Sea (see below). During ship loading, floating booms will be deployed to contain any spilled oil products. Sited at the western end of the site, the LPG terminal facilities will also provide containment bunds and drainage to remove any spills from beneath the pressurized storage vessels, and to limit the rate of evaporation of the spilled butane or propane. Sufficient buffer space is provided between the fuel oil and LPG terminals to prevent an explosion from spreading from one terminal to the other. Provision will be made for automatic monitoring of process equipment, emergency shut-down systems, alarm systems, flame propagation protection means, explosion-proof devices, equipment, and valves, and other mechanisms. All surface drainage underneath and around the twin pipelines carrying butane and propane to the off-shore transshipment jetty will be collected, contained and treated. Four cargo arms – two for butane and two for propane – will be used to load LPG into tankers docking at the two berths. As part of its environmental assessment, the Group conducted a hazard analysis of the destruction radius propagated by various explosion scenarios involving the LPG tank farm and loading pipelines pursuant to Russian Federation requirements. The analysis found that no significant damage would extend to nearby villages. - Emergency Preparedness and Response Prior to commissioning, the Taman terminal and as part of its hazardous materials management program, the Group will develop procedures and practices, in the form of an Emergency Preparedness and Response Plan, that will allow for quick and efficient response to accidents. The Plan will cover procedures for taking emergency response actions and related coordination with the local community and the Krasnodar regional government authorities, emergency response equipment, and training of the emergency response and employee rescue teams in responding to an emergency. Fire protection systems for the fuel oil and LPG tank farm areas will include an underground circular foaming agent network complete with alarms, pump house, foam generators, and mobile equipment. A fire water system will be provided for the protection of the LPG tank farms. At the off-shore moorings, both foaming and water screen systems will be installed with associated alarms and monitors. The Group will not operate the terminal until an adequate program for providing the required marine spill response services has been established and implemented by the state-sponsored Port Authority or another entity. To ensure an adequate response to an oil spill, this marine support unit will have appropriate specialized emergency equipment, procedures, and trained personnel available. As a railcar operator, the Group has no responsibility for managing petroleum products during rail transport and for railcar-related accident planning and response. Instead, this responsibility lies with the owner/shipper of the products and RZhD, and other government authorities. RZhD assumes and retains responsibility for the safe handling and transportation of petroleum products moved under instructions from shippers. RZhD and the Ministry of Emergency Situations provide emergency planning and response coordination, emergency response equipment, and appropriate training of its employees. To date, the Group has not been associated with any train derailments or accidents. In addition, there have been no leaks or spills associated with failures of tank car components while in service. - Terminal Pollution Prevention and Waste Management Air emissions of pollutants will be generated by several sources at the complex, including fugitive volatile emissions from loading and unloading activities, tank farm storage and pumping; transport-related activities, such as ship and locomotive engines; and emissions from the captive, gas-turbine power plant that will supply electric power to the site. Fugitive ammonia emissions, as well as emissions generated by transportation and power generation activities will also be created by the adjacent ammonia terminal. Emissions of volatile petroleum hydrocarbons from equipment will be controlled through the use of good design practices, such as mechanical seals, and equipment maintenance procedures. Fuel oil and LPG storage tanks will also be connected to a pressure relief flare system. The diesel engines comprising the gas-turbine power plant will be of modern design producing exhaust gases currently expected by this technology. Air dispersion modeling of the aggregated emissions from all sources at the fuel oil, LPG and adjacent ammonia facilities operating at capacity simultaneously predict that Russian ambient air standards will not be exceeded for any pollutant at the boundaries of the buffer zones surrounding the facilities. Potable water will be supplied by sea-water desalination plants using the reverse osmosis process and will meet drinking water standards. Stormwaters contaminated with oil will be treated using a combination of physical and chemical processes to separate oils and sediments prior to: (i) discharge to the Black Sea within prescribed limits (< 3 mg/l suspended solids, and < 0.05 mg/l oil products)., or (ii) will be stored in an evaporation pond for recycling for industrial process, non-potable use at the terminal complex. Sanitary sewage generated by terminal employees is to be collected in septic tanks. These tanks are to be periodically emptied and the contents transported to and treated in an integrated biological wastewater treatment plant that is to be operated by the Port Authority. Any ship-generated sanitary wastewaters that are removed during berthing are also to be treated in this Port wastewater treatment plant. The Group will not operate the terminal until adequate sanitary wastewater treatment facilities are put in place. The terminal will generate a variety of wastes, including oil tank- and pipeline-cleaning sludges, wastewater treatment sludges, maintenance waste oils and other wastes, and general plant trash. Materials, such as waste oils and metal scrap, for which there is a recycle market will be sold to licensed contractors. The Group will ensure that all other wastes will be disposed in an authorized disposal facility. Should an authorized off-site facility not be available, the Group or the Port Authority will develop an appropriately licensed facility to accept the wastes generated. - Navigational Safety The Group expects that about 120 fuel oil tankers (40,000 dwt) and 230 gas carrier ships (20,000 dwt) will call on the terminal complex each year. Pursuant to the Iron Horn Port Master Plan, the Port Authority will manage ship traffic in the port area and approaches to ensure navigational safety of all vessels. All ships traveling on the Black Sea must observe special safety and pollution prevention requirements specified by the MARPOL 73/78 Convention. Because some ships will pass through the Bosporous and the Dardanelles, these vessels must also meet the applicable requirements of the Turkish Maritime Regulations for the Turkish Straits, which address measures to prevent accidents that could release petroleum products into the water and air. The Taman terminal operation will not significantly add to ship traffic passing through the Turkish Straits. The majority of oil and LPG transported will come from existing exports already being loaded at competing terminals on the Black Sea. At full capacity, the terminal operation is expected to contribute no more than an additional 1 million tons of fuel oil annually to the 65 million tons that currently passes through the Straits. Only a small number of LPG carrier vessels are expected to pass through the Straits since most of the product will be delivered to Turkish markets on the Black Sea. It’s also important to note that the LPG vessels are considerably smaller than oil tankers and easier to navigate, thus posing reduced risk of accidents. - Community Engagement In accordance with Russian federal law, local (Temryuk) and regional (Krasnodar) government authorities, with the support and participation of the Group, held a public consultation for the Taman project on December 17, 2004 in the nearby village of Taman. Advertised on local TV and in the local press, the 2 ½ hour meeting was held in the local public administration building, and attended by approximately 100 people, including local environmental specialists, local public officials, the press, and members of the local community. The format included presentations on the project followed by an informal Q&A session. The presentations covered: - Project history and overview by a Group management representative; - Project technical details with a focus on environmental management by the Group’s lead engineering and design firm; - Details of the Environmental Impact Assessment results and recommendations by the Group’s lead environmental consultant; - Examples and experiences of other well-executed, sustainable terminal projects by the former senior manager of the regional government’s environmental authority and an associated company representative; and - Description of the project’s economic benefits expected to be realized by the local community by the deputy head of the local government jurisdiction. In addition to raising awareness among the local community about the project, the Q&A session helped to address any questions or concerns, and sought feedback on project implementation issues. Key issues of concern that were addressed included: mitigation of and compensation for damage caused by construction vehicles to local roads; how protection of the existing coastline (e.g., prevention of erosion) would be ensured by the proposed design and operation; how accidental oil spills would be responded to and how environmental damage will be minimized; and the details of any material, development benefits that would be offered to the community. Going forward, the Group has designated a management representative to serve a full-time community liason role and to maintain open two way channels of communication with the surrounding communities. The Group recognizes the importance of continuity and familiarity in building trust with the communities, and this person will be easily accessible and responsible for receiving and responding to grievances, thus ensuring effective engagement with the communities. - Cultural Heritage The Taman peninsula is rich in archaeological sites and certain land areas have been classified as having historical and cultural importance. In the general area in the vicinity of the Taman terminal complex archeological sites dating to the 6th –4th centuries B.C., ancient Greek colonies (1st century B.C.), historical burial grounds, and monuments from the 8th and 9th centuries A.D. are known to exist. The Krasnodar Historical and Cultural Heritage Committee has carried out archeological surveys of the terminal site, and has identified those areas where construction is permitted. In addition and in accordance with Russian law, the Group has put in place a protocol for responding to chance finds during construction work that involves notification of an authorized representative of the Committee in the event of a chance discovery. In those cases and as required, earthwork and construction operations must be conducted under the supervision of archeologists approved by the Committee. - Employee Health and Safety Consistent with its existing railcar maintenance facility activities, the Group will implement appropriate occupational health and safety programs at the terminal complex which will be compliant with stringent Russian workplace regulations. The program shall identify hazards, and shall implement a set of procedures to control and monitor work-related risks for its 300 employees. The Group will provide and maintain workplaces, equipment, tools and machinery and organize work so as to eliminate or control hazardous ambient factors. The Group will provide adequate personnel protective equipment and appropriate health and safety training to all employees. The Group shall record and report occupational injuries and illnesses. - Environmental, Health and Safety Management Systems The Group recently certified its railcar leasing and maintenance operations to ISO 9001, the international quality management system standard. It also intends to develop and implement an ISO 14001 certified environmental management system and an OHSAS 18001 certified health and safety management system at the Taman terminal complex and its railcar maintenance centers.

This ERS contains a summary of the environmental and social impact and performance status for the project. Additional documentation prepared by the Group includes the Environmental Impact Assessments of the Taman terminal submitted to the Russian authorities, as well as documentation of public consultation and related ongoing community engagement activities.

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 described above and in the environmental impact assessment documentation submitted to the Russian authorities.

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 described above and in the environmental impact assessment documentation submitted to the Russian authorities; 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.