This project has been assessed against IFC and World Bank safeguard policies rather than IFC’s Performance Standards. The safeguard policies relevant to this project are: - IFC Policy OP 4.01Environmental Assessment (October 1998); - IFC Policy Statement on Forced Labor and Harmful Child Labor (March 1998); and, - World Bank Group Operational Directive OD4:30 Involuntary Resettlement (June 1990).

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because the project has limited potential adverse environmental and social impacts that are few in number, site specific and readily mitigated. The potential for adverse environmental or social impact from the project is limited, especially in the first stages, where stores are being renovated in existing but upgraded retail outlets, and the distribution center is under development at a redeveloped site used as a warehouse for the last 30 years or so.

The key environmental and social aspects of the project, which have been appraised are the following: - Environmental and occupational health and safety management; - Site acquisition and planning processes; - Life and fire safety; - Labor relations; - Energy efficiency; - Refrigerant selection; - Waste water disposal; - Solid waste management and disposal. 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, and in the Environmental Action Plan dated June 8, 2006, which is appended to this ESRS. It should be noted that this is a greenfield operation, very much in its start-up phase. It may therefore be necessary to adapt the mitigation measures described below as the company expands and becomes more complex. Another implication of the start-up phase is that many of the mitigation measures described below take the form today of planning, to be followed by development and adoption of procedures which have not yet been implemented. IFC will liaise closely with ADA particularly during the early stages of this project to ensure that the mitigation measures described here, with such adaptation as may be necessary do in fact operate as expected. - Environmental and occupational health and safety management ADA does not presently have a formal environmental or occupational health and safety (OHS) management structure. The member of ADA’s Management Board who has responsibility for development and maintenance of properties currently has responsibility for development of appropriate environmental standards. As operations start, ADA expects to manage environmental and social management matters through the company’s Management Board. While these resources are sufficient for a very young and small company, they will not provide adequate environmental oversight for the much larger organization which ADA aspires to become. ADA will assign ongoing responsibility for environmental management to one member of the management board, rather than manage the issue collectively. ADA will develop an environmental management system (EMS) to manage the environmental impacts of its retail and distribution operations and will obtain certification of its EMS to ISO14001 or equivalent standards. As operations become larger and more complex, ADA and IFC will regularly assess the effectiveness of the environmental management function and system within ADA and ADA will appoint a full-time environmental manager should this be shown to be necessary. ADA does have procedures governing management of safety within its operations, and has developed an OHS training program, which covers regulatory requirements, duties and responsibilities of employees, and safety in construction and in its operational processes. Safety procedures also have strong emphasis on maintaining records of items such as health inspections, safety violations and resulting injuries, reporting of accidents to appropriate authorities and maintenance of records of safety spending and training. Procedures require that all accidents will be recorded, investigated and acted upon to prevent recurrence. As stores and the distribution center are opened, training will be provided to staff in safe working practices, for example how to avoid hand and foot injuries which are common in this industry. Hazard analysis will be undertaken for all working positions within ADA’s operations. Within three months of the opening of the 15th store or by December 2006, an OHS audit will be undertaken, and its findings used to modify ADA’s safety management system if this should be necessary. The existing safety management system will be developed, and will be certified to OHSAS 18001 or equivalent. - Site acquisition and planning processes At the present time, ADA is developing store premises by buying existing stores which are often located in the ground floors of apartment buildings, and redeveloping these premises. These purchases are on willing buyer, willing seller basis, and do not cause physical or economic displacement. ADA does expect, in future, to buy land plots and develop stores on these. ADA will develop policies and develop and implement land acquisition procedures consistent with IFC Performance Standard 5, Land Acquisition and Involuntary Resettlement. All land to be purchased will be examined for contamination, and either avoided or appropriate safeguards adopted in the event that contamination is identified. Project designs must comply with local legislation and are authorized by the ministries of Emergency Situations, Health and Environmental and Natural Resources. These ministries inspect buildings on completion of construction and their written approval is required before the buildings can be used. - Life and fire safety ADA anticipates operating stores to three models each with relatively low floor areas of 450 m2 , 600 m2 and 900 m2. The stores currently under redevelopment have relatively long street frontages and are “shallow” buildings. All will have customer entrances at the front and rear entrances for goods deliveries etc. which will be available and marked as alternative emergency exits. Life and Fire Safety aspects of new and refurbished stores comply with local requirements. Also, ADA will appoint a consultant to develop LFS Master Plans for the new and refurbished stores, in compliance with IFC’s LFS requirements. - Labor relations ADA’s employment policies will comply with Article 16 of the Azerbaijan Republic’s Labor Code which among other provisions prohibits discrimination for reasons not connected with professional qualities and skills. ADA does not currently have a trade union, though this is permitted under the code. ADA does have an employee grievance mechanism in the form of a labor dispute committee. No grievances have been made to this committee to date. ADA will have written contracts with employees, which define the keys issues of the employee/employer relationship such as mutual obligations, working time, benefits and holidays, remuneration etc. Employment is on the basis of 6 weekly 8-hour shifts: overtime will be payable if work exceeds this limit. ADA’s salary levels are pitched slightly above rates offered by retail competitors in Baku, and above average salary levels in Azerbaijan for similar work. - Energy efficiency Energy represents a significant expense in the retail industry and one which ADA wishes to control closely. Energy efficiency will be considered by ADA in its evaluation of offers for distribution center chill and cold storage equipment. Stores will be equipped with high efficiency fluorescent lighting and stores will be equipped with electricity and water meters which will be regularly monitored thereby promoting efficient use of utilities. - Refrigerant selection and use Non ozone-depleting refrigerants (i.e. HFCs 134a and 404 a) shall be used in the distribution center and in stores’ refrigeration systems. - Waste water disposal ADA will discharge waste water from the distribution center and from stores to the municipal sewage network. Some meat packing operations will be undertaken at the distribution center. ADA will install fat traps and other such pre-treatment as may be required to comply with the sewage authority’s acceptance criteria. The Govsany waste water treatment plant which serves the whole of Baku is currently undergoing rehabilitation, following receipt of financial support from the government of France. - Solid waste management and disposal Some solid wastes, in the form of damage goods and time-expired food products will arise in stores and the distribution center. These will be collected and disposed of by an authorized waste management company. Other solid wastes, such as paper and card, and plastic packaging materials will be collected and sold for recycling.

Publication of this ESRS and associated Environmental Action Plan constitutes the client’s first community engagement related to its project plans. Such engagement is not required by the Baku authorities having regard for the limited potential for adverse social and environmental impacts arising from the project. Going forward, ADA will establish a formal system, the “Book of Suggestions and Complaints” one of which will be held in each store, to receive comments from members of the public. These comments will be studied and acted upon by the company’s senior management. All store personnel will be trained in customer relations. The numbers of grievances received and resolved will be used to in determination of store staff performance. It is expected that the major part of ADA’s community engagement will take the form of advertising and brand-building.