25996 - ZMZ-Bearings

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Environmental & Social Review Summary

Project Number

25996

Company Name

Daido Metal Russia LLC

Date ESRS Disclosed

Aug 22, 2007

Country

Russian Federation

Region

Europe

Last Updated Date

Dec 1, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Nov 7, 2007
Signed : Nov 19, 2007
Invested : Dec 17, 2007

Sector

Motor Vehicle Parts

Industry

Manufacturing

Department

Regional Industry MAS LAC & EUR

Project Description

The project is to support Daido Metal Co. Ltd.''s (Daido Metal or the sponsor) entry into Russia through the acquisition of LLC ZMZ-Bearings (ZMZ-Bearings or the company), a leading local manufacturer of half bearings for automotive engines. The company started production of bearings in 1959. It was a 100% owned subsidiary of OAO Severstal-Auto, a Russian Original Equipment Manufacturer (OEM). The company is the largest manufacturer of steel and aluminum strip and plain bearings for automobile engines in Russia and the CIS countries. It manufactures aluminum bearings, half bearings, bushes, washers, and semi-washers for automotive engines. Its major customers are domestic OEMs such as Avtovaz and OAO Zavolzhye Motor Works (ZMZ).

The project will introduce the up-to-date technology and high-quality manufacturing standards of a Japanese parts supplier into Russia. Through the acquisition, Daido Metal may have a strong demonstration effect encouraging other Japanese suppliers with advanced technologies to enter into new markets beyond Asia, North America and the EU.

The company is located in Zavolzhje town (population is 70,000), about 50 kilometers North-West from Nizhniy Novgorod, in the industrial zone of the territory of ZMZ. All the company’s major facilities, support facilities, storage, administrative and auxiliary facilities are located in a single building. The company leases the building and key equipment from ZMZ. The distance to the nearest residential area is 300 meters and to the nearest water body (the Volga River) is 800 meters. The company is historically connected in its operations to ZMZ. It was established in 1958 and operated as a part of ZMZ until it was spun off as a separate entity in 2003. Its operations as a whole, and the management of environmental and health and safety risks, are interconnected with those of ZMZ– a larger industrial group located in the same industrial area.

The main production processes undertaken by the company are:

- alloy AMO-1-20 smelting (aluminum – 79%, tin – 20%, copper – 1%) in the induction furnace, decontamination, and continuous casting;
- sheathing of the alloy strip with aluminum;
- de-greasing of the strip in trichloroethylene steam;
- three-layered steel-aluminum strip production;
- sliding bearing brass production from the steel-aluminum strip;
- mechanical operations with the bearing brass (drilling, slot milling, surface conditioning; and
- finished product shipping.

Overview of IFC's Scope of Review

IFC’s appraisal consisted of:

- a review of the company’s documentation and discussions with plant management regarding the operations of the manufacturing plant;
- interviews with plant management regarding corporate environmental, health and safety standards, and corporate social responsibility initiatives;
- a review of the environmental, health and safety audit report conducted by EHS consultants and a follow-up discussion with consultants; and
- a physical inspection of the manufacturing plant.

E & S Project Categorization and Applicable Standard

While all Performance Standards (PS) 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 system
- PS2: Labor and working conditions
- PS3: Pollution prevention and abatement
- PS4: Community health, safety and security

The findings of the project review confirm the application of these performance standards and indicate that there are no impacts related to Involuntary Resettlement (PS5), Biodiversity Conservation and Natural Resources Management (PS6), Indigenous Peoples (PS7) or Cultural Heritage (PS8).

This project 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 the applicable performance standards, guidelines and the environmental and social action plan (ESAP).

Environmental and social issues associated with this project include:

- company’s management of environmental, health and safety performance in its operations; compliance with national and local permitting requirements; and its engagement with local communities regarding environmental, health and safety performance, as well as any corporate social responsibility efforts;
- workplace health and safety related mainly to chemical hazards and mechanical works;
- emissions to the environment (air emissions, waste water treatment and discharge, solid waste management); and
- management of hazardous materials handling and disposal.

The company has demonstrated the capacity, and has committed the resources, to implement comprehensive environmental, health, safety and quality management systems consistent with international standards (ISO) as well as IFC environmental and social performance standards.

Environmental and Social Mitigation Measures

The company has systems in place to address potentially adverse impacts to ensure that the activities financed by IFC will comply with host country laws and regulations and IFC’s performance standards on social and environmental sustainability, and the applicable environmental, health and safety guidelines. Information concerning how these potential impacts will be addressed by the company is summarized in the paragraphs that follow.

- Social and Environmental Assessment and Management Systems

Environmental and occupational health and safety management system on the plant is organized appropriately to manage the potential risks. Environmental management is currently coordinated with ZMZ and is performed for the company by dedicated ZMZ staff on a contractual basis. According to the contract, the environmental department of ZMZ performs the following functions:

- monitoring for compliance with environmental permit requirements,
- environmental consulting services, and
- air quality analysis.

The environmental policy of the company has not been formulated to date and the company adheres to the environmental policy of ZMZ. The Chief Engineer of the company is responsible for coordinating environmental activities of all divisions of the company.

The company’s Deputy Chief Engineer is responsible for occupational safety at the plant, for the supervision of hazardous waste management and for the fire safety. The Process Engineer is responsible for maintaining the facility’s hazardous waste storage. The company has an Occupational Health and Safety Division that consists of two people. The main functions of the division are as follows:

- development of action plans aimed at improvement of working conditions,
- analysis of cause-root and consequences of injuries,
- supervision of Personal Protective Equipment use,
- monitoring of working conditions,
- compilation of statistic reporting forms on working conditions, and
- interaction with regulatory authorities.

The company has obtained ISO 9001 certification and has indicated its intentions to conduct necessary work to achieve compliance with ISO 14001 and receive corresponding certification in 2007-2008. In addition, the company has committed to

- enhance its environmental management systems and conduct a historical contamination audit;
- develop an Environmental, Health and Safety policy;
- develop an Environmental, Health and Safety Management System,
- retain an Environmental Health and Safety Manager.

- Human Resources and Working Conditions

The company employs about 650 people, most of whom are residents of Zavolzhie. The company’s human resources policy is in compliance with the Russian labor legislation (Labor Code) in hiring and retaining its personnel and its practices are materially compliant with IFC performance standards. The Personnel Department is responsible for implementing the human resources policy and day to day human resources management. Compensation levels are considered attractive in comparison to other employers in the town of Zavolzhje and a number of benefits stipulated by the Russian legislation is included in employment contracts (such as paid vacations, maternity leave, etc). The contracts of employment are established through a collective agreement between the workers and the company.

The company annually conducts an assessment and develops and implements action plans aimed at the improvement of working conditions and has developed a system for OHS training and certification of the workers. OHS certification of work places is performed by the inspectors from the local government oversight agency every five years. Day to day OHS performance information is reported by the line supervisors and recorded by the OHS Division that conducts root cause analysis and develops necessary ongoing corrective actions.

Workers are provided with several different levels of training including occupational health and safety training that includes:

- introductory briefing,
- general briefing,
- on-the-job briefing and training,
- re-briefing and training,
- unscheduled briefing, and
- specialized briefing.

The multi-level OHS training program includes general information on identification, preventing and mitigating the impacts of hazards on the production line as well as PPE use information and specialized information on particular risks involved in operations for personnel involved.

In addition, several training programs are developed and approved by the State Labor Inspection of the Nizhniy Novgorod Region, such as:

- OHS training for managers and HSE specialists,
- OHS training for workers involved in hazardous operations,
- a program for electrical and technical personnel,
- OHS training for operations with chemical substances used in the trichloroethylene recovery system.

- Pollution prevention and abatement

The company has obtained all necessary permits for air emissions, wastewater discharge and solid and hazardous waste removal.

Air emissions:

The company has identified 69 air emission sources. The total permitted emission is nine tons per year, the majority of which is trichloroethylene, carbon monoxide, alumina, and metal dust. The xompany’s emissions share makes 1.7% of the emissions of ZMZ and other facilities located on the territory of ZMZ. The contaminated air abatement is performed by wet scrubbers that have efficiency from 67% to 99%. Trichloroethylene which is used in the process is not prohibited in Russia and is being captured and reused by the trichloroethylene recovery system installed on the plant. The actual ground level concentrations of pollutants in the ambient air in the vicinity of the enterprise’s sites do not exceed a hundredth part of the maximum permitted concentrations. In 2006 the volume of air emissions exceeded the stated Maximum Permitted Emissions (MPE) and the company is currently discussing with the regulatory authorities the increase in allowed emissions that will be more appropriate to the increased intensity of the production process.

Wastewater:

The process water is discharged to the process sewerage of ZMZ under contract where it undergoes full treatment. About 4.5 thousand cubic meters of process water and about 273 thousand cubic meters of sanitary flow had been discharged in 2005 according to the company’s calculations. The stormwater is discharged to the process sewerage system and then to the same treatment facility of ZMZ. Process and stormwater, once treated, is used for the process water-supply of ZMZ. The sanitary water waste water is discharged to the biological treatment facility of ZMZ on a contractual basis. Waste water treatment facilities of ZMZ after full treatment are monitored by the local regulatory agency before they are being released in order to establish their level of compliance with the purity standards. The company currently exceeds the agreed volume of wastewater discharges to the treatment facility of ZMZ and is discussing the change of contractual terms and increase in the allowed discharge that will be compatible with the intensified production process and reflect the current level of discharges.

Hazardous wastes:

Hazardous wastes from the production include spent mercury-vapor lamps and static capacitors containing PCB. They are disposed off using the services of specialized and licensed contractors for hazardous waste disposal. At the transformer substation of the plant there are 17 oil transformers that don’t contain PCB. Static capacitors that contain PCB and that are not prohibited in Russia, are installed on the industrial furnace and several transformers for the reactive power lowering. A part of such capacitors has been taken out of operation and disposed of. The remaining capacitors are in operation and are planned to be disposed of as well. A third-party contractor licensed for operation with PCB containing capacitors is used for the maintenance and eventual removal of the capacitors as well as for the removal of PCB-containing wastes for further processing at certified and licensed facilities.

Solid wastes:

Thirty types of wastes of different hazard categories are generated in the process of the steel-aluminum strip production and bearing brass production. Ten types of wastes are generated in the auxiliary operations, such as internal transportation, repair operations and maintenance of the lighting system. The plant generates 2200 tones of process wastes and 60 tones of domestic wastes. The maximum limits have been established for all types of wastes accumulated by the plant. Amounts of waste disposed of by the enterprise are not in excess of the limits on the waste disposal. On-site waste storage and handling is properly managed. The wastes generated by the company are disposed and utilized in the following ways:

- delivered to specialized enterprises for treatment and utilization,
- delivered to specialized enterprise for landfilling,
- used by the company, and
- recycled by the company.

The company has prepared and submitted the application package for the waste collection, transportation, decontamination and disposal license and plans to conduct waste removal on its own when the license is granted. Currently, solid waste removal is undertaken on a contractual basis by third party contractors who are licensed to undertake such activities.

- Community Health, Safety and Security

The company is a part of a large industrial complex that houses ZMZ facilities. As a part of an industrial zone, the sanitary protection zone for the company is 100 meters. It is located inside the sanitary protection zone of ZMZ, which is 300 meters. No residential buildings are located in the sanitary protection zone. The emergency response system of ZMZ-Bearings is the part of the emergency response system of ZMZ. The ZMZ response system is the part of the integrated emergency response system of OAO “Severstal-Auto”. The Deputy Chief engineer is responsible for civil and emergency defense. The emergency defense group consists of 66 people. As a part of the emergency response system, an emergency response plan was developed in 2005. The plan covers potential emergency situations, identifies development scenarios of the emergency situations, formulates personnel emergency warning systems, includes emergency detection and response scenarios, and provides plans for evacuation from hazardous zones. The emergency response is a part of health and safety training of the workers and is coordinated with civil authorities.

Stakeholder Engagement

The company implements a number of activities in supporting the local communities in Zavolzhje. The industrial area of ZMZ constitutes the biggest employer in the area and provides an economic base for the town of Zavolzhje. As a part of the group of industrial companies in the ZMZ industrial zone, the company participates in social programs for its workers and the community and maintains close contact with the city administration on social programs and economic development initiatives as well as improving the life of local residents. The company participates in a number of philanthropic activities and provides additional support to the families of workers and other categories of local residents.

Client Documentation

File Name	Actions
ESAP ZMZ Bearings.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.
It is distributed in advance of IFC Board of Directors' consideration and may be periodically updated thereafter. Board dates are estimates only and this document should not be construed as presuming the outcome of the Board Directors’ decision. The following ESRS is disclosed in accordance with IFC's Access to Information Policy (AIP).

The map is for illustrative purposes and does not imply the expression of any opinion on the part of the World Bank, concerning the legal status of any country or territory or concerning the delimitation of frontiers or boundaries. Country borders or names do not necessarily reflect the World Bank Group's official position. In some cases, available project location information is limited to the country of the project's activities. Locations are approximate.

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