While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards: - PS 1: Social and Environmental Assessment and Management System - PS 2: Labor and Working Conditions - PS 3: Pollution Prevention and Abatement - PS 4: Community Health, Safety and Security - PS 6: Biodiversity Conservation and Sustainable Natural Resources The following Performance Standards do not apply to the project: PS 5: Land Acquisition and Involuntary Resettlement – land acquired from private people for railroad spur was a voluntary market land transaction; other land for the project did not require either re-zoning or physical displacement of people. PS 7: Indigenous People – No indigenous people are living within the area of project influence. PS 8: Cultural Heritage – No cultural heritage sites have been identified within the scope of this project.

This is a Category B project according to IFC’s Environmental and Social Review Procedures, 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.

Key environmental and social issues are summarized in the paragraphs that follow. 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 IFC environment and social PSs. Further information is provided in the attached Environmental and Social Action Plan (ESAP). - PS:1 Social and Environmental Assessment and Management Systems: The Social and Environmental assessment process conformed to the requirements of Russian environmental laws and regulations, including public consultation requirements. The assessment process included an Environmental Impact Assessment (EIA) study of the proposed development, including industrial facilities and associated infrastructure (deep-water port; access vehicle road (400 m) and railroad spur (6 km)). The EIA study was carried out by external consultants and was approved by the federal environmental authorities. The EIA included analysis of the cumulative impact of the new development and the neighboring oil transfer terminal (operated by Lukoil company) on the health of the affected population and the environment. Baseline measurements of air and water quality were carried out and recorded. At the request of environmental authorities, additional investigations of the impact of channel dredging operations on water quality and fish resources were carried out during the assessment process. Losses of fishery and forestry resources were evaluated and fully compensated to the responsible governmental agencies. Dialog and communication with the affected communities, including public consultation and disclosure of environmental and social information, occurred through procedures established by host country regulations. Information on the project was made available to the local communities (3800 people) by the number of publications in the local newspaper. The preliminary EIA was disclosed 30 days ahead of public hearings, held on March 30, 2005. The final EIA was made available to local communities at the office of the local government. Presently, the company is in the process of development and establishment of an integrated management system, based on internationally recognized standards ISO 9001-2000, ISO 14001:2004, OHSAS 18001:1999 and ISO 22000:2005. The company has already certified its HACCP-based food safety system and is planning to obtain ISO 9001 and ISO 140001 certifications in 2008. Sodrugestvo also has hired specific in-house personnel with responsibility and authority for environmental, health and safety issues. Going forward, Sodrugestvo will establish environmental policy, corporate standards and operational procedures consistent with the IFC environmental and social Performance Standards (PSs). Operational procedures will provide for environmental and social assessment of future project development, comprehensive ESHS performance monitoring of all its operations and associated facilities and allocation of necessary resources for continued compliance with Russian regulatory requirements and IFC PSs. The management program will incorporate a complaints management procedure to receive and facilitate resolution of any community concerns and grievances about the client’s environmental and social performance. The management program will incorporate a training program for employees and contractors with direct responsibility for activities relevant to the project’s social and environmental performance. To ensure compliance with the Russian regulatory requirements, Sodrugestvo has developed a 2007-2008 Environmental Action Plan, which was agreed with the local regulatory authorities. Upon completion of the Environmental Action Plan it is planned to carry out an environmental audit to identify any further actions which should be taken to achieve full compliance with Russian regulatory requirements. - PS 2: Labor and working conditions: Presently, Sodrugestvo employs 527 people and plans to increase this number up to 630 people by the start-up of the plant. Sodrugestvo is giving preference to hiring locally. The majority types of jobs require skilled work and knowledge of equipment/technology. Sodrugestvo has opened a training centre in Volochaevskoye to provide occupational adaptation. All employees also have to undergo a full training on health and safety at induction and subsequently on worker’s health and safety relevant to their job activity. Presently, there is no organization of workers at Sodrugestvo. In the absence of collective bargaining, the Client has adopted an HR Policy and internal Code of Conduct, which addresses terms of employment and working conditions consistent with the Russian Labor Code and regulations. Going forward, the Client will not discourage workers from forming or joining workers’ organizations of their choosing or bargaining collectively, and will provide a grievance mechanism for workers to raise workplace concerns consistent with the requirements of PS2. Occupational health and safety (OHS) at Sodrugestvo is managed by the nominated responsible persons. The procedures on safety issues have been developed in line with federal OHS regulations. Measures to prevent worker exposure to chemical hazards include prevention of uncontrolled releases of hexane and uncontrolled reactions that might result in fire or explosions; and use of engineering controls (smoke and hexane detection systems, automatic alarms, etc.). In accordance with Russian regulatory requirements, upon the start-up of the plant, the company will hire a licensed company to carry out job safety analysis for each workstation. Based on the results of this analysis, an Action Plan aimed at OHS hazards minimization and control will be developed, including use of appropriate PPE in conjunction with training. Potable water to employees is supplied from 12 groundwater supply sources. Treated water complies with WHO and Russian standards for drinking water. Hot food and first-aid services will be made available to employees upon plant’s start-up. - PS 3: Pollution prevention and abatement: - Air emissions management strategy: Particulate matter (grain and flour dust) and volatile organic compounds (hexane used for oil-extraction process) are the principal emissions from Sodrugestvo’s operations. Dust emissions. The company has installed cyclones and bag filters on all major sources of dust emissions (grain unloading areas; grain conveyors and elevators; raw materials preparation; oil extraction plant) and is expected to achieve IFC’s limit of 10 mg/m3. Hexane emissions. To minimize hexane loss and prevent its release to the atmosphere, hexane will be recovered and reused in the technological process. Residual gas from distillation of micelle and flakes is transferred to an absorption column that uses mineral oil. Emissions from the absorption column are expected to meet IFC’s limit of 100 mg/m3. Exhaust gases. The Sodrugestvo plant will operate an auxiliary NG boiler for the generation of steam energy and hot water. The boiler will use NG as a fuel and IFC’s limit for NOx, SO2 and PM emissions is expected to be achieved without secondary controls. Total annual mass load of air emissions (26 pollutants) from Sodrugestvo plant is estimated in the EIA as 778 tonnes. Impacts were estimated by the qualitative and quantitative assessments by the use of baseline air quality data and air dispersion models to assess potential ground level concentrations. The results of the modeling showed that the maximum allowable concentration (MAC) will be met at the edge of the buffer zone (300 m) for all polluting substances generated as the result of the company’s activity. Thus, it is expected that Sodrugestvo will be in compliance with Russian requirements for ambient air quality. Ambient levels of particulate matter (PM) of 0,25 mg/m3 exceed IFC’s guidelines values of 0,05 mg/m3. The company is adopting a high level of dust control for point sources and will ensure proper maintenance of cleaning, screening and crushing equipment, including any ventilation and air handling systems, to reduce emissions of fugitive dust. The effectiveness of emissions management strategy will be assessed through periodic emissions and ambient air quality monitoring programs agreed with IFC. First measurements will be done and presented to IFC after commissioning of the plant. Effluent management: Process wastewater generated during oil washing and neutralization will have a high content of organic material and, subsequently, a high biological and chemical oxygen demand (BOD and COD). Wastewater will also contain high levels of suspended solids, organic nitrogen, and oil and grease. Process wastewater will be treated at the centralized waste water treatment plant (WWTP) owned and operated by Sodrugestvo. The WWTP will provide for primary and secondary treatment, including screening of coarse residuals; flow and load equalization; separation of floatable solids; anaerobic followed by aerobic biological treatment for reduction of soluble organic matter (BOD); biological nutrient removal for reduction in nitrogen and phosphorous; and, membrane filtration technology (Zee Weed). Sanitary effluent will be pre-treated by screening and equalization and then mixed with process wastewater (after floatation) and pumped to biological treatment and membrane filtration. Treated effluent will be discharged to the existing artificial stream PR-5 connected to Kaliningrad sea channel. Storm water is separated from process and sanitary wastewater streams in order to reduce the volume of wastewater to be treated prior to final discharge. The peak discharge (first 300 m3) is transferred to wastewater treatment to reduce oil products and suspended solids. To prevent soil contamination with oil in case of accidental leaks and spills, all oil tanks and reservoirs have secondary containment equipped with oil traps. These industrial wastewater controls are expected meet IFC guideline values. The effectiveness of their wastewater management strategy will be assessed through periodic monitoring programs agreed with IFC. First measurements will be done after commissioning of the plant. Waste management Dredged spoil management In 2005 the company has carried out dredging operations to provide deep-water port navigation access. Dredged spoil was partly used as fill for construction of part of the project site (17 hectares). The company will carry out soil investigations to determine any potential contamination with hazardous materials generated as the result of its historical accumulation in Kaliningrad sea channel. The Client is committed, by the ESAP, to provide any necessary controls to avoid the risk to human health and environment in the event of any registered exceeding of Russian regulatory values for hazardous materials in the soil. Non-hazardous wastes will be disposed at municipal landfill site Kruglovo, including non-edible organic solid waste; bleaching earth; domestic solid wastes; and sludge from wastewater treatment. Soap stocks in the amount of 11930 tons and distillates (free fatty acids) in the amount of 7400 tons will be sold to third parties as a feedstock for chemical industry processes (soap making). Mercury lamps in the amount of 0.7 tons will be removed and utilized by a licensed company. Going forward, Sodrugestvo will investigate opportunities for reuse of sewage sludge, organic solid wastes and bleaching earth to minimize volumes of waste to be land-filled. As the first step, Sodrugestvo will carry out a quality assessment of sewage sludge and bleaching earth to identify any possibility to use it as fertilizer in agricultural applications. - Emergency preparedness and response: The company has presented Emergency Plans to address its operational risks. The largest operational risks associated with Sodrugestvo’s activities are grain/flour dust fires and explosions and hexane releases. Emergency Prevention measures include operational procedures to - control ignition sources to reduce fire and explosion hazards; - maintain air concentrations of hexane below 10% of lower explosive limits and to - provide constants operational readiness of fire detection and suppression systems (systematic inspections, drills, etc.). Emergency Response plans assume the worst possible scenarios and include emergency communication procedures with project workers (rely on in-house emergency response) and affected communities (rely on municipal emergency response) and emergency response procedures (evacuation; shutting down equipment; fire fighting; etc.). An in-house rescue team consists of 3 people per shift (2 drivers of fire fighting engines plus the Head of rescue team in charge of coordination of Emergency Response activities). - PS 4: Community Health, Safety & Security: The Social and Environmental Assessment of the project carried out by Sodrugestvo didn’t identify any major risks to community health, safety and security associated with routine operation of plant. Ground concentrations of the polluting substances (NOx; hexane; dust) will be periodically measured at the edge of buffer zone (300 m) and the closest residential area of Volochaevskoye settlement. Sodrugestvo is also committed to carry out measurement of acoustic impacts on the nearest receptor location off-site and households located within railroad buffer zone (100 m) and to implement corrective actions in case of increased values. - Emergency Preparedness and Response: In the event of hexane release beyond the plant boundaries, emergency response plans rely on municipal services and provide for a community involvement component that addresses appropriate behavior and safety measures to be implemented. - Product safety: Industry-specific issues that could affect the community or the public at large may include the potential presence of pathogens and contaminants in processed oil. To minimize food safety risks, Sodrugestvo has established HACCP-based food safety standards and obtained HACCP certification. Although Russian regulations do not prohibit usage of genetically modified organisms (GMOs) in food industry, Sodrugestvo’s own policy is to not use GMOs for food products/components intended for human consumption. Food supplements for animal consumption containing GMOs will be registered and marked in accordance with Russian regulatory requirements. - PS 5: Land Acquisition and Involuntary Resettlement: The plot of land allocated for Sodrugestvo project (17 ha) was owned by Svetliy municipality and initially destined for industrial development purposes. No physical or economic displacement was associated with land allocation. The announcement on preliminary land allocation for Sodrugestvo’s project was published on May 7, 2004 in the local newspaper “Svetlovskiye Vesti”. An additional 17 ha were filled by Sodrugestvo as the result of dredging operations. Rail spur construction required acquisition of agricultural land from 13 private people and re-zoning of land use from agricultural to industrial. The acquisition was a voluntary market land transaction and legal documents confirming the willing buyer-willing seller principle are available. The acquired plot of land was not in actual agricultural use. There was no economic or physical displacement associated with land acquisition. - PS 6: Biodiversity Conservation and Sustainable Natural Resources The construction phase of the project had some limited adverse impacts on forestry and aquatic habitats, which have been authorized by the federal environmental authorities and fully compensated in accordance with RF regulations. The operational phase of the project should not result in any additional adverse biodiversity impacts. - Impact on forestry resources. Rail spur construction required the acquisition of 1.2 hectares of forest and its conversion to industrial land. The forest was rated as protection forest. The conversion was authorized by federal environmental authorities, whose positive opinion was based on the relatively small size of plot required for clearing - 30 m x 400 m. All losses were fully compensated to the state in accordance with RF regulations. - Impact on fishery resources. Based on the assessment of the need for infill for the project site and port navigation access, dredging operations were carried out in 2005. Kaliningrad channel is part of Kaliningrad bay – a sensitive fishery water body and, thus, a more detailed EIA study was carried out to assess the potential impacts on habitats, human health and environment, associated with construction dredging and dredge spoil disposal. The EIA study reports on the significant role of Kaliningrad channel in reproduction of fish resources (Baltic herring, European sea-eel, Atlantic salmon). Areas sensitive for marine life such as feeding, breeding, calving and spawning areas were identified; modeling of sediment suspension concentrations was carried out; compensation for the loss of plankton, benthos and fishery losses were estimated and fully compensated to the state in accordance with RF regulations. During dredging activities (5 months), inspection and monitoring was carried out by the state environmental authority, Kaliningrad state sea inspection. Monitoring results were compared to baseline data collected in 2004 and the conclusion was made that dredging operations caused short-term re-suspension of sediments (6-50 mg/l) and, thus, adverse impact on aquatic life was considered to be minimal.

Dialog and communication with the affected communities including public consultation and disclosure of environmental and social information occurred through procedures established by host country regulations. Information on the project was made available to the local communities (3800 people) by the number of publications in the local newspaper. Preliminary EIA was disclosed 30 days ahead of public hearings, held on March 30, 2005. Final EIA was made available to local communities at the office of local government in Svetliy. For more information, contact Mr. Sergey Poliakov, Chief Financial Officer at the company’s office at: 65 Gagarin Street, Svetliy, Kaliningrad Region, 238340, Russian Federation, tel. + 7(4012) 30-55-44. The hard copies of the ESRS and ESAP will be made available at the following location: Svetly Urban District, The Municipal Administration, Sovietskaya str., Svetly city, 238340 Kaliningrad region, Tel. (40152) 22333 The electronic versions of the ESRS and the ESAP will be available for public review on IFC’s website and the company’s website: http://www.sodrugestvo.com.