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 included an evaluation of technical and environmental info submitted by the sponsor, along with a physical inspection of their operations in Sharja. The following environmental, social and health and safety aspects of the project were reviewed during project appraisal: - air, water and solid waste emissions, - use of hazardous materials, - health and safety issues, and - forest harvesting and sustainability.

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. The plant occupies a 120 ha site in the north of Sharja. The site was reviewed during the previous investment and contained no environmental constraints. There are a number of existing old buildings on the site, from previous state forest sector enterprises, which the Company has surveyed for structural integrity and which are in the process of being renovated or torn down. The company has secured any unsafe buildings against unauthorized use pending their removal. The company has erected substantial new industrial facilities on the site, and construction is nearing completion. All of these are constructed to international standards. A pre-existing wet process fiberboard mill on the site was in poor physical condition at the time of the original appraisal, but has now been upgraded and will be further renovated during 2005 to ensure that occupational health and safety conditions are comparable to the new plant. Electricity is provided from the local grid. There are three 18MW diesel gensets for back-up power needs. The new facilities have been designed to make efficient use of natural resources and minimize emissions to the environment. When complete, the plant will have 2 boilers (24 and 31 MW), fired with wood waste and used for space heating, heating of thermal fluid and steam generation. Preliminary measurements indicate that these will meet World Bank Group guidelines for air emissions. Dust from manufacturing and finishing processes is collected and used for fuel or in the manufacturing process. The entire site, including the log yard, is hard-surfaced, and all runoff water from the site is collected and treated in a dedicated primary wastewater treatment system. The clean effluent is mainly reused on site for washing and other technical uses, and any remaining is discharged to the municipal collection system. Process wastewater, largely from the MDF plant, is treated in a new secondary, activated sludge plant with sand filtration, and is also largely recycled for on-site use. Sanitary wastes are discharged separately to the municipal wastewater treatment plant. Housekeeping throughout the plant is exemplary. Dust and formaldehyde levels in the workplace are regularly monitored. Resins for the manufacturing process are properly controlled. All products meet the E1 standard for formaldehyde emissions. Fumes from the existing particleboard line hot press are poorly controlled due to inadequate filtering, and these conditions will be improved with the installation of new control equipment in the additional line which is now being installed. The entire plant is equipped with state-of-the-art fire detection and suppression systems, including sprinklers in material storage and other areas, and a central automated control system. There is a dedicated fire brigade and fire truck. Kronostar is developing and implementing environmental and health and safety management systems, and expects to have these certified to ISO 14001 and OHSAS 18001 standards, respectively, in 2005. These management systems will help to ensure that environmental and health and safety issues are all handled effectively. Kronostar’s raw material supply includes both waste wood from other processing operations as well as roundwood from independent harvesting companies. Kronostar is forming joint ventures with certain harvesting companies which have long-term concessions (up to 49 years), and will require all these joint ventures to obtain independent certification for sustainable forest management, according to a phased schedule as specified in the Action Plan. For purchases from other independent harvesters or processing facilities, Kronostar will adopt a policy for preferential purchase of certified wood, to the extent available in the local market, and will encourage its suppliers to also achieve certification of their operations. Kronostar will exercise due diligence to ensure that all wood it purchases is legally harvested and does not come from any protected areas. IFC is investigating ways to support Kronostar and other IFC forest sector investments in northwest Russia through training and other technical support in sustainable forest management for their associated small harvesting and processing companies, through possible trust fund or SME linkage programs.

The following supporting documents provide further details of environmental and/or social issues. - Kronostar Action Plan

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 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 measuring programs. Periodic site supervision visits will also be conducted.