25694 - Galnaftogaz Expansion Phase II

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Environmental & Social Review Summary

Project Number

25694

Company Name

CONCERN GALNAFTOGAZ, JSC

Date ESRS Disclosed

Jul 16, 2007

Country

Ukraine

Region

Europe

Last Updated Date

Jun 3, 2021

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Dec 11, 2007
Signed : Dec 18, 2007
Invested : Mar 7, 2008

Sector

Other Petroleum and Coal Products

Industry

Manufacturing

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

Open Joint Stock Company Concern Galnaftogaz (GNG or the company), an existing IFC client, is the largest independent (not tied to a refinery) operator of gas filling stations in Ukraine. Galnaftogaz’s main business is distribution of petroleum products mainly gasoline and diesel through its network of filling stations and direct sale in the wholesale market. GNG currently operates 9 storage terminals and about 219 stations, including 176 (OKKO) branded stations. OKKO stations are high throughput and modern format gas stations which offer high quality fuel and a variety of related products and services (convenience store, car wash, auto repair, and fast food services). GNG had sales of $515.9 million and EBITDA of $24.7 million in 2006 and was ranked fourth in Ukraine by number of stations and third by sales volume.

GNG requested IFC for financing package of $100 million ($50 million on IFC’s own account and $50 million on account of participant banks) to fund the second phase of its expansion with estimated capital expenditures of $642 million over the next 4 years. The expansion aims to increase the company’s petroleum distribution network by about 270 OKKO stations through acquisitions of 170 stations and construction/upgrading of 188 stations (currently GNG operates 43 unbranded stations most of which will be converted, while the remainder will be sold or closed). Besides the stations, the project involves investments in supporting infrastructure (storage terminals, petroleum trucks, acquisition of land under existing stations, etc.).

Overview of IFC's Scope of Review

The review of this project consisted of appraising technical, environmental, health, safety and social information submitted by the project sponsor, and a field visit in May 2007. The environmental and social (E&S) appraisal team visited the Galnaftogaz (GNG) fuel storage terminals in L’viv and Brodu and a few gas stations in western Ukraine. The E&S team held meetings with the management team of GNG and Universal Investment Group, the holding company of GNG. The E&S appraisal team also held separate meetings with the managers for human resources, environment and safety, terminal renovation, and for gas station network development in GNG.

E & S Project Categorization and Applicable Standard

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:

- PS1: Social and Environmental Assessment and Management Systems
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS4: Community Health, Safety and Security
- PS5: Land Acquisition and Involuntary Resettlement

There are no protected species or protected areas at or near the GNG sites. There are no indigenous people near GNG sites. The proposed project has no impacts on cultural heritage.

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.

The project mainly comprises the gas station network expansion and working capital increase. There is no new construction for the fuel storage terminals. GNG will mainly purchase existing gas stations and industrial land to construct its OKKO brand gas stations. The environmental and social risk related to gas station operation is limited, and GNG plans to renovate its fuel storage terminals. Mitigation measures for the potential environmental and social impacts are identified and incorporated in the attached Environmental and Social Action Plan (ESAP).

Environmental and Social Mitigation Measures

GNG 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 IFC Environment and Social Performance Standards and the World Bank Group (WBG) environmental, health and safety (EHS) guidelines. The information about how these potential impacts will be addressed by GNG is summarized in the paragraphs that follow.

1. Social and Environmental Assessment and Management Systems:

Land and natural environment:

GNG operates nine fuel storage terminals and approximately 219 gas stations, mainly in western and central Ukraine. All the terminals are located in rural or industrial settings, there are no communities near any of the sites. There are no protected areas or protected species identified at or near any of the terminals. The gas stations are all located along highways or roads in cities and towns.

Environmental and social management and organization:

There are environmental and safety managers at each fuel storage terminal. GNG is in the process of setting up a corporate EHS office. GNG has hired a corporate safety manager for the EHS office. GNG will hire an environmental manager and another technical staff member for the EHS department soon. In accordance with the ESAP, GNG will set up and staff the proposed EHS department and establish an effective EHS management system.

2. Labor and Working Conditions:

Human Resources Policy and Management:

The company has a Human Resources (HR) policy which specifies the terms of employment and working conditions at GNG. These include procedures for hiring and recruiting, probation, training, performance review, promotion, insurance, salary and compensation, resignation, lay-off and firing, leave, vacation, and retirement. The employees have access to these policies and procedures. The human resources function is a corporate function for all terminals and gas stations. HR also works as a grievance channel for employee’s concerns. External experts are contracted to audit GNG labor performance annually. There are approximately 4,150 employees in GNG. The company will hire more employees for new gas stations. GNG complies with national law and does not hire workers below the age of 18. The weekly working hours are 40. At gas stations, employees may work more than 40 hours with extra compensation for overtime.

Worker’s Organization:

There is one independent union at GNG, and the management allows collective bargaining, initiated either from the union or other groups of employees.

Non-Discrimination and Equal Opportunity:

GNG has policies to hire employees locally. GNG also hires disable people, which account for 4% of GNG’s labor forces according to the Ukrainian laws. Hiring and promotion are merit-based only. No evidence of discrimination or unequal opportunity was identified during the appraisal.

Occupational health and safety (OHS):

There are physical examinations for all new employees, and there is an annual physical check for all field employees. Once the EHS department is set up, the OHS performance will be managed by the corporate EHS department. There are operational safety procedures at GNG. All the employees are required to pass safety training before starting work. Employees are also required to take annual safety refresher courses. In accordance with the ESAP, GNG will modify its operational safety procedures and enforce them effectively in the future. GNG will also monitor all the recordable accidents and compile statistical data of OHS accidents. The workplace gasoline levels meet both local regulatory requirements and good international industry practice. GNG will monitor the workplace gasoline levels quarterly instead of biannually in the future.

3. Pollution Prevention and Abatement:

Environmental Compliance:

There are no manufacturing processes at GNG. The contaminated oily stormwater at both fuel storage terminals and gas stations is treated onsite before being discharged to municipal sewers. The effluent meets both local regulatory requirements and WBG/IFC guideline limits. The car washing wastewater is treated through filtration onsite and recycled for car washing. The used filters are disposed by government approved companies. Winter heating systems at GNG use either electric heaters or gas-burning boilers. The boiler emissions meet both local regulatory requirements and WBG/IFC guideline limits. As stated in the ESAP, GNG will start monitoring the ambient gasoline levels for fuel terminals. GNG will also monitor ambient gasoline levels at the gas stations that are adjacent to the communities.

Most of GNG’s gas stations are the OKKO brand ones that adopt EU standards. The underground storage tanks have double steel layers and leak monitoring, and have limited impacts on groundwater and soil. GNG has an on-going program to renovate the purchased gas stations to OKKO brand gas stations, and conduct small scale soil remediation if necessary. As required in the ESAP, GNG will submit a detailed renovation plan for the underground storage tanks at the old gas stations with implementation priority, cost, and timetable for IFC review and approval. The renovation plan will focus on mitigation of the historical groundwater and soil contamination.

Tank Farms at Fuel Storage Terminals:

The tank farms at the terminals were initially built 30 to 40 years ago. GNG set up a terminal management office to lead the terminal renovation. GNG has contracted external experts to inspect all tank safety and integrity, and these inspections will be repeated every three to five years based on the age and status of the tanks. In accordance with the ESAP, GNG will submit the English summary of the tank safety/integrity checking reports for all nine storage terminals for IFC review.

The tank farm bottoms and secondary containment walls are built on regular soils, and covered by vegetation during the summer. Since there are neither floating roofs nor gas recovery systems for the tanks at the terminals, gasoline vapor is emitted from the tanks during the loading processes in the tank farms. The fuel loading, unloading, and measuring are manually controlled at all terminals. The terminal management office has started a feasibility study for terminal renovation. As required in the ESAP, GNG will submit a detailed renovation plan for the storage terminals with an implementation priority, cost, and timetable for IFC review and approval.

Solid and hazardous wastes:

GNG has internal policies/procedures to handle solid and hazardous wastes. Municipal contractors collect sanitary solid wastes generated from terminals and gas stations periodically. A local government owned company collects various hazardous wastes, mainly used petroleum products, from GNG sites and transports hazardous wastes back to the company for treatment, recycle, and disposal.

Fire prevention and emergency response:

GNG has a fire prevention rules and emergency response plan. There is a fire truck available for 24 hours at each fuel storage terminal. There is fire fighting equipment, including sprinkling system and the fire extinguishers, at GNG sites. If needed, the fire trucks from fire departments could reach various GNG sites in five to 10 minutes. There is internal fire safety training once a year for all GNG employees. GNG also has fire drills once a month at its fuel storage terminals. GNG has passed all the government fire prevention inspections. There is no community near the fuel storage terminals. In accordance with the ESAP, GNG will hold annual fire drills at each gas station, and try to involve the nearby communities in the fire drills, if the communities could be affected by the potential fires.

4. Community Health, Safety and Security:

Community health, safety and security:

GNG’s fuel storage terminals are either located inside the large industrial zone or in the rural areas with no community nearby. The operations of the terminals have no direct impacts to distant communities. The gas stations are located along the highways and urban roads, and some are adjacent to the communities. GNG will take the aforementioned methods to mitigate impacts to the adjacent communities of some gas stations.

The fuel is transported to the storage terminals by rail. GNG delivers the fuel from terminals to gas stations through by road tankers. According to the ESAP, GNG will increase the maintenance frequencies and inspection for its older road tankers, and provide defensive driving and emergency response training for its tanker drivers.

5. Land Acquisition and Involuntary Resettlement
GNG has an ambitious plan to set up new a gas station network in the next few years. Most of the gas stations are on small land lots between 0.1 and 0.3 ha. Involuntary resettlement is forbidden under Ukrainian law for industrial usage. In most of the cases, GNG only purchases existing gas stations or abandoned industrial land from local government for construction of new gas stations. GNG avoids acquiring agricultural, forest, and residential land. In the case of purchasing land from individuals, GNG negotiates the price directly with the owner and gets permits from both land owners and all the tenants, if there are any, before the purchase. As stated in the ESAP, GNG will modify its land acquisition policy according to IFC Performance Standards and commit to follow IFC Performance Standard 5 in any future land purchase. In early 2009, GNG will submit a summary for the land acquisition process in 2007 and 2008 for IFC review.

Stakeholder Engagement

GNG has established programs with a specified budget for community engagement and development. GNG has a fund to support orphanages and low income families. It set up three orphan centers to provide family settings for orphans, and involves the local communities in the orphan center program. GNG also support local communities for sporting activities and special Ukrainian cultural events. GNG publishes its hotline number at each gas station for nearby communities to express their concerns related to GNG operations. GNG also publishes its environmental performance data for each fuel storage terminal at local media. Before land purchase and construction of new gas stations, GNG publishes project information with geological data at the local newspaper, and holds consultation meeting with local communities if needed. GNG signed up to the United Nations Compact on enterprise social responsibility in January 2007 and decided to comply voluntarily with the environmental and social principles.

Environmental documents will also be disclosed locally. For inquiries and comments about the environmental and social impacts, please contact the following:

Mr. Yuriy Kuchabskiy, General Director
72 Turgenieva Str.
Lviv, Ukraine 79015
Fax: (38-32) 298 96 02

Client Documentation

File Name	Actions
ESAP - GNG II (final).pdf

**Information on IFC's Policy and Performance Standards on Environmental and Social Sustainability can be found at www.ifc.org/sustainability

IFC supports its clients in addressing environmental and social issues arising from their business activities by requiring its real sector clients to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities in relation to environmental and social issues arising from IFC's clients' business activities. Since 2012, IFC's Financial Intermediary clients applying the Performance Standards are required to develop External Communications Mechanisms to receive and review inquiries or complaints from any interested party regarding the E&S risks and impacts of their operations.

For IFC projects that are active or under consideration, individual(s), or their authorized representative(s), who allege they have been or will be adversely affected by E&S risks or impacts arising from IFC's clients' business activities, may submit a complaint to IFC directly for consideration. When receiving an E&S complaint, IFC engages with complainants and works with its clients to find solutions to E&S concerns as quickly and efficiently as possible.

Complaints can be submitted to IFC online at www.ifc.org/escomplaints or by email to EScomplaints@ifc.org.

IFC complaint response is separate from and complementary to IFC’s clients’ project level grievance mechanisms and IFC’s Independent Accountability Mechanism (CAO). Lodging a complaint directly with IFC does not, at any time, restrict access to CAO.

Affected communities have unrestricted access to the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for IFC and MIGA. CAO facilitates the resolution of complaints related to IFC and MIGA projects and sub-projects, undertakes reviews of IFC’s and MIGA’s environmental and social compliance, fosters public accountability for their commitments, and enhances the environmental and social performance of IFC and MIGA.

Independent of IFC and MIGA management and reporting directly to the IFC and MIGA Boards of Executive Directors, CAO helps resolve issues raised about the environmental and social impacts of projects through a neutral, collaborative, problem-solving approach via its Dispute Resolution function. It also reviews IFC’s and MIGA’s compliance with environmental and social policies, assesses related harm, and recommends remedial actions through its Compliance function. Additionally, CAO provides advice to IFC, MIGA, and their Boards to enhance environmental and social sustainability performance and minimize the risk of harm.

Complaints may relate to environmental and social harm regarding any aspect of the planning, implementation, or impact of a project or sub-project, and can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of an IFC- or MIGA-financed business activity.

Complaints can be submitted by any of the following methods:

Online form: available at https://www.cao-ombudsman.org/
Mail/Hand Delivery to: 2121 Pennsylvania Avenue, NW, Washington, DC 20433, USA
Voice mail: +1 202 458 1973
Email: cao@worldbankgroup.org
SMS, WhatsApp, Telegram, and Signal: +1 202 650 2627

CAO receives and addresses complaints in accordance with the CAO Policy, which can be accessed at: https://www.cao-ombudsman.org/policies-guidelines.

This Environmental and Social Review Summary (ESRS) is prepared by IFC to disclose its findings and recommendations related to environmental and social considerations regarding potential investments. Its purpose is to enhance the transparency of IFC's activities. For any project documentation or data included or attached herein, whether prepared by the project sponsor or otherwise, authorization has been given for public release by the project sponsor. IFC considers that this ESRS is of adequate quality for release to the public, but has not necessarily independently verified all of the project information therein.
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