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 and environmental/social information submitted by the project sponsor. The project is expected to have mostly positive environmental impacts through improvements in operating procedures and working conditions and reductions in technical distribution losses. The following potential environment, health and safety and social impacts of the projects were analyzed: >> corporate environmental management program; >> environmental compliance; >> reduction of GHG emissions by reducing technical distribution losses (gas leakages); and >> human resources.

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 European Union (EU) 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. >> Corporate Environmental Management Program In March 2000, DGS adopted a more focused approach to managing environmental issues by establishing the Environmental Department, which reports directly to the Operations Manager. The company has put in place an environmental management system that complies with Environmental Management System ISO 4001, for which it achieved formal accreditation in February 2004. The company’s environmental policy is mainly designed to ensure compliance with the specific legislation regarding air, soil and water pollution. Self-monitoring programs have been put in place for the areas where polluting factors have been identified. DGS has also launched waste management programs to address the issues of waste identification according to the European Catalogue of Wastes, as well as waste storage and recycling. A specific program designed to monitor methane emissions is also in place with the aim to reduce emissions and associated taxes payable to the Environmental Fund, which was established according to the Romanian environmental legislation. Private companies in Romania are preparing for Romania's entrance into the European Union, presently expected to occur in 2007. DGS’ transition to meeting EU requirements will be facilitated by GdF's experience in France and other European countries in which it operates. Currently, DGS has an environmental manager, who coordinates in-house programs and with local environmental agencies. GdF will organize and staff the environment, health and safety management function for its Romanian operations, in order to integrate GdF's practices with those of DGS. GdF plans to extend the sustainable development practices of its domestic operations to DGS, as well as implement EU requirements for monitoring and reporting of environmental performance. A key component will be the reduction of greenhouse gasses as a result of pipeline replacements and improvements in maintenance procedures. GdF will also identify opportunities, such as implementation of pollution prevention approaches, energy efficiency improvements, resource recovery and waste recycling to improve operations at DGS. >> Environmental Compliance IFC's appraisal found that DGS develops and operates its system in substantial compliance with Romanian and international gas standards. The existing distribution system is reasonably well maintained and appropriate environmental, social, and safety procedures are in place for renovation of the older parts of the network and associated equipment and for system expansions. DGS' gas pipelines are normally installed along roads or railways, and few occasions arise where right-of-way acquisition is required. DGS is in overall compliance with its environmental obligations. However, it has receives a number of small fines for violations of surface drainage water, and has taken remedial action to prevent this. A program designed to estimate methane emissions is also in place with the aim to reduce emissions and associated taxes payable to the Environmental Fund. Gas transmission and distribution in Romania was developed in the second half of the 20th century through exploitation of domestic gas reserves. Currently, about 20% of gas consumed is imported. Romania does not have a history of manufactured gas. An environmental audit was carried out (by the GOR) in September 2003 on the company’s gas distribution facilities as part of the privatization. Two main types of premises were surveyed: service depots where vehicles are maintained and materials, equipment and substances are stored and where maintenance crews are based, and gas regulating stations performing the conversion of high-pressure gas to lower pressure for delivery to end users. The environmental audit found that corrective actions were needed for storage of elemental mercury removed from obsolete meters, underground fuel storage tanks, asbestos containing materials (mainly roofing) and evaluation of waste removal vendors, and indicated that the overall environmental risk rating was low to medium. DGS has no material environmental liabilities. GdF will need to conduct a more complete follow-up audit of all facilities and prepare an internal plan to implement the results. >> Environmental Benefits of Natural Gas The project has a high development impact due to the fundamental characteristics of city gas distribution, including its benign impact on the environment, the low hazards of transporting gas through gas distribution networks, and the positive social and economic benefits it imparts to the local populations. Natural gas is one of the cleanest and cheapest fossil fuels, and its widespread use is one of the most cost-effective ways of reducing harmful air pollution caused by the widespread use of less clean-burning fuels that can be replaced by natural gas, such as the sulfur-containing fuel oil and coal used by industry. Romania is characterized by high energy consumption and low energy efficiency. The rehabilitation and expansion of the DGS distribution network will lead to important environmental and safety benefits. The largest part of the investment is expected to be directed towards rehabilitation, since about 25% of the existing steel distribution lines are more than 30 years old with many corroded and in need of replacement. This will result in lower natural gas leakage and a lower contribution to greenhouse gas emissions (natural gas itself being a greenhouse gas). Also, the rehabilitation and expansion of the gas distribution network will increase economic activity due to requirement for domestically manufactured goods such as polyethylene pipes and gas meters, as well as lead to an increased requirement for local construction jobs. DGS' capital expenditure program will advance the market penetration of natural gas and result in significant reduction over time in the emissions of greenhouse gases that are believed to be a contributor to global warming. The magnitude of these benefits will depend on the market sector and the energy source displaced. In addition, DGS' investment program is expected to substantially reduce current leakage from old pipe networks. Leakage as a percentage of total gas throughput will drop incrementally as pipe networks are upgraded, and the quantity of gas lost each year is expected to drop from an estimated 1% to 2% today to less than 0.5% as a result of network improvements. Because natural gas is mainly methane, which is a greenhouse gas with high global warming potential, this will, by 2012, represent an annual avoidance of as much as 1.8 million tons of CO2 equivalent. >> Human Resources DGS currently as about 10,600 employees, who conduct nearly all operations and maintenance of the company. New construction, such as extending service to new areas is provided by contractors. Three independent gas-sector unions operate at the company at the branch level, and almost 100% of the company’s employees are members of the unions. Relationships between the unions and the company are good, with no major disputes in the past. GdF plans to reduce staffing levels in DGS by about 40% over the period 2008-2013, and will work with all stakeholders to ease this transition. The company’s employee training programs have two main orientations: technical skills (pipe line welding, maintenance and repairing); and professional knowledge skills (management, marketing, accounting, etc.). Historically, training has been performed mainly within the Company - at a training center in Pucioasa and under supervision on the job. A key component of training programs in the past several years has been welding courses and other work practices instruction regarding installation of polyethylene pipe networks.

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 EU 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 ongoing performance of project-specific environmental, health and safety and social activities. Periodic site supervision visits will also be conducted.