IFC’s review of the project identified that the following Performance Standards apply: - PS1: Social and Environmental Assessment and Management System - PS2: Labor and Working Conditions - PS3: Pollution Prevention and Abatement - PS4: Community Health, Safety and Security - PS5: Land Acquisition and Involuntary Resettlement - PS6: Biodiversity Conservation and Sustainable Natural Resource Management - PS8: Cultural Heritage No indigenous peoples, as defined for the purposes of IFC Performance Standard 7, were identified to be resident within the project area of influence.

The Hidromaule project is a small run-of-river hydroelectric plant that offtakes water from an existing irrigation canal system. Land required for the hydroelectric plant and related transmission line is privately owned and can largely be acquired through negotiated agreements. The project setting is forested grazing land and does not include habitats of high value, protected areas, or protected species. Construction impacts can be readily mitigated, and operational impacts will be minor. Key issues going forward are the development of the company’s internal management systems and the Action Plan for the project. Based on the forgoing, the project has potential limited adverse social and environmental impacts and is categorized as B.

The company has assessed the anticipated impacts and will put necessary plans in place to ensure that the proposed project will comply with Chilean legislation and IFC’s Performance Standards. Information about how these potential impacts will be addressed by Hidromaule is summarized in the paragraphs that follow. - PS1: Social and Environmental Assessment and Management System Hidromaule was required to file a Declaracion de Impacto Ambiental (DIA) and supporting information, rather than a full ESIA. The DIA for the Central Hidroelectrica Lircay was prepared by Jaime Illanes y Asociados of Santiago in July 2006. The Comision Regional del Medio Ambiente (COREMA) for Chile Region VII approved the project on November 3, 2006 by Resolucion No. 414. A separate DIA will be prepared for the transmission line to connect the hydro plant to the electric grid. The project, including the transmission line, has a limited area of influence. There are no associated facilities. The project is being developed to its full potential capacity initially. The company has two additional small hydroelectric plants planned nearby on the Maule canal system; the projects are not anticipated to interact or to have cumulative impacts. No other projects nearby are planned or known. The project will occur entirely within Chile and the river systems affected are not international waterways. No transboundary effects are anticipated. No disadvantaged or vulnerable groups have been identified in the area of influence. Hidromaule is a start-up company and will be implementing management systems appropriate to its operations prior to the start of construction. The principals of the company are experienced in water sector civil works and project management and administration. While ultimate responsibility for the project's compliance with Chilean and IFC requirements will lie with Hidromaule, day-to-day responsibility for implementing environmental and social mitigation and monitoring activities will be with the contractors (civil works, electro-mechanical, substation/transmission line). The DIA and Resolucion No. 414 include the elements of the Action Plan for compliance with Chilean requirements. A full Action Plan will be developed to comply with IFC's Performance Standard 1. Given the current status of project implementation, Hidromaule has not yet fully put in place the staff resources and procedures to implement the Action Plan. IFC acknowledges Hidromaule’s commitments to procure this capacity prior to the start of any construction related activities. The community that will be affected by the project is effectively the same as the membership in the Canal Maule Association. The Association holds the water rights that will be used by the project and has been involved in the process from concept development to the present. - PS2: Labor and Working Conditions Hidromaule will employ about 150 workers at the peak of the construction period and about 10 workers during operations. The company will develop a human resources policy and procedures, taking into account Chilean regulations and Performance Standard 2 before the start of project construction. Hidromaule will employ about 150 workers at the peak of the construction period and about 10 workers during operations. Chile has ratified the main ILO Conventions on trade union rights (Conventions No. 87 and No. 98), forced labor (Conventions No. 29 and 105), child labor (Conventions 138 and 182) and discrimination (Convention No. 100 and No. 111). National law offers protection in each of these areas. Chile’s Labor Code stipulates that the employer is obligated to take all measures necessary to effectively protect the lives and health of workers, maintain adequate safety and health conditions, and provide the necessary tools to prevent occupational accidents and diseases. Hidromaule will use three contractors to build the required hydropower and transmission line facilities. The company will require the contractors to comply with all relevant requirements of Chilean legislation (including laws and regulations on acceptable conditions of work, monthly minimum income and maximum permissible workweek) and IFC’s Performance Standard 2. Construction and other contracts will specify occupational health and safety commitments to be observed by the contractors and subcontractors, as well as monitoring responsibilities. - PS3: Pollution Prevention and Abatement Hidromaule and its construction contractors will establish organizations and systems to implement their respective Action Plans, under Hidromaule’s overall control. The contractors will have responsibility for traffic, waste, labor force, environmental monitoring, health and safety, spill contingency, and hazardous materials management. Construction and operation of hydroelectric facilities such as the Lircay project involve activities and materials for which pollution prevention and abatement practices are well established. Hidromaule estimates that thermal generating plants in Chile release about 600 tons of CO2 to the atmosphere for each gigawatt-hour of electricity produced. The Lircay plant is expected to generate about 130 GWh of electricity in an average hydrologic year, which will result in the avoidance of 78,000 tons of CO2 annually. Over its 50-year commercial life, the Lircay plant will avoid the emission of nearly 4 million tons of CO2. Hidromaule will prepare construction period and operations emergency preparedness plans prior to the start of any site work activities and power generation activities, respectively. - PS4: Community Health, Safety and Security The project will consist of an offtake diversion structure, a 3 km long canal (portions covered), a 520 m steel penstock, and a power house. Construction will occur in a rural, uninhabited area that is frequented mainly by animal herders. The diversion structure will be constructed alongside an existing Maule Norte Bajo canal-road intersection that is accessible to the public, but will not pose any risks that are new or different from the existing structure. The 3 km long canal and penstock will be constructed in an uninhabited, forested area used for cattle grazing. There is a small risk that livestock or people could put themselves at risk by entering the covered portion of the canal. Other risks related to the canal are well known in the region as canals are common. There will be risks during operation both from normal and emergency events. Although it will be staffed, the power house will be remotely operated and water in the tailrace could pose a risk to passerby. This is normally handled by a horn or siren that sounds prior to the beginning of operation. In emergencies, water in the canal and penstock would be released to prevent damage to the equipment. An emergency overflow will be located at the top of the penstock so that the canal flow can be diverted. Given the very limited public access to the diversion point, risks to people are minimal. Animals or wildlife might be affected. None of the project locations are high-risk and the structures are small, there is no need for expert review of the designs and emergency provisions beyond the company's designers and the local regulator's review. The company will need to prepare emergency preparedness and response plans; these are expected to be straightforward. Power plant operating staff will likely provide any needed security. - PS5: Land Acquisition and Involuntary Resettlement Chile's Electricity Law gives private electricity concessionaires, such as Hidromaule, the ability to acquire land and establish easements through expropriation and other legal proceedings. However, Hidromaule’s policy is to acquire land rights through amicable agreements with the landowners, whenever possible. The company will resort to expropriation or impose easements through the application of the law only in the event that negotiations with owners fail. The construction of the project’s electricity generating facilities will take place in an area of 17.5 hectares. The acquisition of this area will affect three private properties. The first, Fundo La Calor, with an area of 12 hectares, is being acquired in its entirety from 85 persons who have inheritance rights over this property. Hidromaule has already purchased 92% of the inheritance rights and is currently negotiating the purchase of the remaining rights. Fundo La Calor was occupied by only one of the 85 persons with inheritance rights. This person, who had lived in the Fundo La Calor for 25 years and had “material possession” of the property, sold his inheritance rights to Hidromaule, which enabled the company to secure material possession of the property. The other two properties will be partially affected by the project. Hidromaule will acquire easement rights (servidumbre de paso) from the owners of these properties (an individual and a forestry company). The easement rights are required for the construction of a 2,950 meter-long canal. No dwellings will be affected by the acquisition of easement rights. The construction of the project’s transmission line (with an approximate length of 25 km) will affect approximately 85 landowners. Hidromaule plans to acquire the right of way for line through negotiated agreements with the affected landowners. The line is not expected to displace dwellings or other occupied structures. If displacement is unavoidable, Hidromaule will prepare a Resettlement Action Plan that meets the requirements of IFC's Performance Standard 5. Hidromaule will develop procedures to acquire the right of way for the transmission line in a manner consistent with Chilean legislation and IFC’s Performance Standard 5. The procedures will ensure that adequate compensation and benefits will be offered to the persons adversely impacted by the transmission line. The procedures will take into account the concerns expressed by impacted persons during the consultation process, and will include procedures to receive and respond to grievances. - PS6: Biodiversity Conservation and Sustainable Natural Resource Management The Lircay project setting is forested grazing land and does not include habitats of high value, protected areas, or protected species. About 17 ha of land will be required for the hydroelectric facilities. The initial 400 m of the canal will unavoidably affect about 3 ha of native vegetation, as no feasible alternatives were found. As part of its forest management plan agreed with CONAF, Hidromaule will replant 3 ha of native vegetation and 7 ha of radiata pine on land that it controls as part of the project. Hidromaule will also ensure that, to the extent practical, civil works for the project will not affect native vegetation. Location studies for the transmission line are currently underway; the initial few kilometers of the route are similar in context to the hydroelectric facilities, while the remainder of the route is agricultural land. - PS8: Cultural Heritage The project is not likely to have adverse impacts on tangible or intangible forms of cultural heritage. Studies for the DIA identified three archeological sites of minor importance outside the area of direct influence of the project. A professional archaeologist will monitor project construction periodically. Hidromaule’s contractors will be required to implement chance find procedures and will not disturb any chance finds further until the professional archaeologist has assessed the site and recommended actions consistent with Chilean regulations and the requirements of PS8.

The community that will be affected by the project is effectively the same as the membership in the Canal Maule Association. The Association holds the water rights that will be used by the project and has been involved in the process from concept development to the present. Officers of the Canal Maule Association confirmed their understanding of and support for the project to IFC during appraisal. In addition, the Agency has reviewed the Client’s documentation: the July 2006 Declaracion de Impacto Ambiental and CONAMA Resolucion Exenta No. 414 for the project, which are available on CONAMA’s website: http://www.e-seia.cl/documentos/documento.php?idDocumento=1805021 Documents can also be reviewed, by appointment, at Hidromaule S.A., Av. Presidente Kennedy 5757 Of.802, Las Condes, Santiago, Chile. Please contact: Carl F. Weber Silva Hidromaule S.A. Telephone: (562) 245-3600 E-mail: cweber@hidromaule.cl