26088 - Shanshui III

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Environmental & Social Review Summary

Project Number

26088

Company Name

CHINA SHANSHUI CEMENT GROUP LIMITED

Date ESRS Disclosed

Sep 28, 2007

Country

China

Region

East Asia and the Pacific

Last Updated Date

Nov 30, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Nov 15, 2007
Signed : Nov 16, 2007
Invested : Nov 26, 2007

Sector

Cement

Industry

Manufacturing

Department

Regional Industry - MAS Asia & Pac

Project Description

SSG is China’s second largest cement manufacturing groups, and the market leader in the Shandong Province. With headquarters in Shandong Province, SSG operates 10 clinker manufacturing lines at seven locations, with a total installed capacity of 12.4 million tons of clinker per year, and 46 clinker milling and cement bagging facilities at 13 locations (of which one is under construction). SSG has reached its current capacity through a combination of acquiring existing cement manufacturing plants and converting them to modern dry-kiln operations and establishing greenfield operations in connection with sustainable limestone deposits. IFC is considering a second combined equity and debt financing package for SSG’s corporate operations that would include the acquisition and upgrading of four existing cement production facilities and the construction of two new greenfield facilities. The upgrading of acquired facilities will both include emission control upgrades, installation of energy efficient equipment, and the installation of the latest waste heat recovery systems for power generation.

Overview of IFC's Scope of Review

An IFC team including both Social and Environmental specialists visited four cement manufacturing facilities targeted by the Shanshui Group (SSG or the Company) for acquisition and the sites of two potential greenfield cement facilities in northeastern China. Where possible, a detailed review of the targeted facilities was carried out, while the review of other targeted facilities was based on disclosed bidding information and a visual inspection (without access to further specific information). The IFC team concluded its assessment with detailed discussions with the SSG senior management at Group’s headquarters in Jinan. During the visit, the team also reviewed the Group’s progress in implementing environmental and social commitments made in the corrective action plan for a previous IFC loan.

E & S Project Categorization and Applicable Standard

The appraisal and review of project information confirmed impacts related to the following Performance Standards:

- PS1: Social and Environmental Assessment and Management Systems
- PS2: Labor and Working Conditions
- PS3: Pollution Prevention and Abatement
- PS 4: Community Health, Safety and Security
- PS 5: Land Acquisition and Involuntary Resettlement
- PS 6: Biodiversity Conservation and Sustainable Natural Resource Management

The findings of the project review confirm the application of these performance standards and indicate that there are no impacts related to Indigenous Peoples (PS7) or Cultural Heritage (PS8). However, impacts related to these Performance Standards will be re-assessed for the proposed greenfield investments as they are developed.

SSG is an existing IFC client in good standing with respect to implementation of previous environmental commitments. The proposed acquisition and expansion of existing facilities do not involve any new land take. Land for the planned greenfield sites will not result in any physical displacement and no significant economic displacement or disturbance of natural habitat. With no indication of impacts related to Performance Standards 7 and 8 at this time, and only common manageable environmental issues related to Performance Standards 1 through 6, the project is being processed as a Category B project. Specific requirements for environmental and social impact assessment and management related to the development of the greenfield sites will be included in IFC’s financing agreements.

Environmental and Social Mitigation Measures

The sponsor has presented plans to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with host country environmental and social requirements as well as IFC’s Environmental and Social Performance Standards and industry guidelines. The information about how these potential impacts are being/will be addressed by the SSG is summarized in the paragraphs that follow.

- PS1: Social and Environmental Assessment and Management Systems:

IFC’s assessment considered the company’s management of its environmental, health and safety performance in the establishment and operation of its facilities; compliance with national and local permitting requirements; and the company’s engagement with local communities regarding environmental, health and safety performance and corporate social responsibility.

- Management Systems:

SSG maintains a centralized Environmental Management System (EMS) that is applied across the corporation through a headquarters-based “Technology Center”. Information provided by this office indicates that SSG meets the IFC guideline limits for particulate emissions at all plants even though the current Chinese regulations allow for higher concentrations. SSG’s EMS strategy is based on the ISO 14001 procedures and SSG has achieved an ISO 14001 (Environmental Management System) certification at 18 of its subsidiaries. In addition, SSG has committed to seeking ISO 14001 certification for all its existing facilities before 2009. Any new plants to be acquired or constructed in the future will be certified within two years of take over or commencement of operations.

- Guideline Compliance and Monitoring:

As part of its establishment of a corporate EMS, SSG has been introducing continuous oxygen, carbon monoxide, particulate, sulfur dioxide and nitrogen oxides control of the kiln emissions. Oxygen and carbon monoxide measurements will be linked to the process controls to optimize the energy utilization, while the particulate, sulfur dioxide and nitrogen oxides monitoring will be used to ensure compliance with the local regulations and the IFC industry guidelines on a continuous basis. The previously monitored concentrations of particulate, SO2 and NOx are based on spot sampling by the authorities and are not corrected for temperature and humidity. Nevertheless these measurements indicate full compliance the former World Bank guidelines with respect to sulfur dioxide and particulate emissions (400 mg SO2/Ncm and 50 mg particulate/Ncm), and indicate average nitrogen oxide concentrations close to, or in, compliance with IFC guidelines of 600 mg NOx/Ncm. Once continuous measurements are available, SSG will present plant-specific Corrective Action Plans (CAP) to IFC for approval if any exceedence is continuous or dominant on a yearly average basis. The CAPs will commit the company to achieve compliance with emission limits according to a practical schedule for implementation. All new clinker production facilities will be designed with continuous emission monitoring and full compliance with the new IFC guidelines (30 mg particulate/Ncm, 400 mg SO2/Ncm, and 600 mg NOx/Ncm) from plant commissioning.

- Quarry Reclamation:

While there is no formal requirement for the submission of a quarry reclamation plan to obtain limestone usage rights from the government, SSG has agreed to prepare quarry reclamation plans for all new quarries before operations begin and will also include the development of such reclamation plans in the CAP for EMS implementation. SSG acquires other raw materials used in the cement manufacturing process (e.g. iron ore, gypsum, clay) on the open market.

- Environmental Assessment:

Environmental assessment requirements are maintained by the Chinese State Environment Protection Agency (SEPA). Developers of greenfield industrial projects are required to engage qualified SEPA technical staff to undertake and prepare an environmental impact assessment report and management plan for all new projects. SSG is following this procedure for its two proposed greenfield cement plants and, as a condition of the Action Plan, will publicly disclose the SEPA assessment report.

- Community Engagement:

There is no formal public consultation required for greenfield industrial projects in China. Potentially affected communities are informed of impending projects by local authorities who act as intermediaries for project sponsors in the acquisition of land and access rights of way. Affected communities have the opportunity to raise grievances with local authorities.

- PS2: Labor and Working Conditions:

IFC’s assessment considered the company’s operations with regard to fair, safe and healthy working conditions in the construction and operation of facilities. The SSG employs more than 6700 full time staff in all of its current facilities as of the end of 2006. Another approximately 6000 people will be employed through planned acquisition of additional facilities, expansion of those facilities and development of planned greenfield facilities.

- Human Resource Policy and Management:

SSG applies a corporate HR policy across all operating units that is generally consistent with IFC’s Performance Standard. The HR policy supports a system that includes components related to: guidelines for recruitment, selection and continuity in service; standardized skill competencies; performance appraisal; career progression; professional development; rewards and recognition; and professional ethics.

Employee relations with management, wages rates and benefits are governed by the national Labor Law. At a minimum, all SSG employees are provided with medical insurance and workman’s compensation (accident insurance), unemployment insurance, maternity leave, housing allowance and pension. The national Labor Law is currently under revision and is scheduled for ratification in January 2008. Each operating unit is awarded a bonus by SSG Corporate for meeting and exceeding annual production targets. The management of each unit determines the division of the bonus among all unit employees.

- Worker’s Organizations:

Labor standards for industrial workers are maintained by the provincial Labor Bureau, which enforces working hours and leave, remuneration, dispute procedures, disciplinary procedures and benefits. At the individual plant level, all non-management employees are enrolled in a workers organization which nominates a member of the plant management to represent their interests. The terms of employment maintained by both the government as well as SSG provides for mechanisms by which workers can raise and resolve grievances in the workplace with plant management.

- Retrenchment:

There is no retrenchment associated with IFC’s investment in the company. SSG’s acquisition strategy calls for expansion of targeted facilities that will result in a net increase in workforce in each facility.

- Occupational Health & Safety:

SSG follows all national and local statutes governing the protection of the workforce. Satisfactory standards of workplace health and safety are maintained by each operating unit in accordance with ISO standards for monitoring, reporting, corrective action and continuous improvement. SSG is committed to applying the same standards to all facilities targeted for acquisition.

SSG maintains workplace accident statistics for its existing operations. These statistics are reported to meet national and provincial Labor Bureau requirements and are not directly comparable with ILO standards but they do indicate very low accident frequencies (approximately one Lost-Day-Accident/Million-Man-Hours (LDA/MMH) for 2006). SSG is in the progress of expanding its current reporting system to include ILO based reporting standards, including LDA/MMH or similar, to allow IFC to compare the SSG operation with other international cement operators on a regular basis and provide SSG with feed-back on its operational results. SSG also maintains good housekeeping standards at its facilities as well as greenery within and around its facilities as a matter of corporate policy.

- PS3: Pollution Prevention and Abatement:

IFC’s assessment considered the company’s operations regard efforts to optimize resource inputs, including energy efficiency and waste minimization practices as well as the storage and handling of hazardous materials used in the construction and operations of facilities.

As part of its expansion since 1996, SSG has acquired a number of Vertical Shaft Kiln (VSK) clinker operations. VSK operations are known to be heavily polluting because of the high concentration of particulate matter in emissions to the air, ineficient use of energy, and limited in ability to produce high quality clinker. SSG has now replaced all VSKs with modern pre-heater and pre-calciner dry process kilns. These new installations have increased the production of high quality cement and reduced particulate air pollution to well within then current IFC guideline limit of 50 mg particulate/Ncm in effect until April 30, 2007. That limit has subsequently been revised to 30 mg/Ncm for new plants. Sulfur dioxide emissions of all kilns are also low, averaging 53 mg SO2/cm in 2006, due to the use of low sulfur coal, while nitrogen oxide levels averaged 385mg NOx/cm in 2006. Monitoring of air emissions at each facility is carried out on an annual basis by the Chinese authorities. Readings are not corrected for temperature and humidity and are thus not directly comparable to the guideline limits. However, these readings indicate full compliance with respect to sulfur dioxide emissions and nitrogen oxide emission guideline limits. All SSG’s kilns are now in the process of having continuous monitoring equipment installed (see Corrective Action Plan below for time frame), and based on the outcome of the continued monitoring, plans will be established for corrective actions for any plant exceeding the guideline limits. All future clinker lines and cement grinding facilities will be designed to comply with the latest IFC guidelines, including NOx limits of 600 mg/Ncm and particulate emission limits of 30 mg/Ncm.

SSG is also in the process of installing waste heat recovery for power generation at all its clinker operations. The installation of these systems will be completed by the end of 2007, and will result in the generation of 9 MW per 5,000 ton per day capacity kiln or a total of approximately 60 MW of electricity from heat traditionally lost from the clinker kiln operations. SSG will outfit all kiln operations acquired with these systems, and new constructions will include these systems in the initial design.

A specific CO2 calculation can not be made for this investment, as it is a corporate investment in an ever expanding corporation. All SSG’s operations are however energy efficient, and have energy recovery systems installed. The CO2 emission per ton of cement manufactured (using coal-based energy), is estimated at 840 kg CO2. With a total capacity of 15 million tons of cement in 2006, the total CO2 emissions of all SSG operations in 2006 is estimated at 12.6 million tons.

- PS4: Community Health, Safety and Security:

IFC’s assessment considered the company’s operations with regard to the impacts of the construction and operations of facilities, including: movement of vehicles to and from construction sites, operation of construction equipment, containment of dust, noise and other nuisance factors; and control of public access to construction sites.

SSG’s current operations and potential future acquisition targets are all located with fair access to the main road infrastructure. The facilities controlled by SSG are all operating according to sound pollution control principles, and any acquired asset will, within a reasonable time frame also be upgraded to meet the same standards. The SSG operations will in turn take over the local cement supply, and with older vertical shaft kilns being closed down by the authorities by 2009 the overall impact on the affected areas will be an improved air quality and better operational standards.

- PS5: Land Acquisition and Involuntary Resettlement:

IFC’s assessment considered the company’s operations with regard to the potential displacement of occupants and/or users of land acquired for the construction and operation of facilities. All of the facilities – including quarries and mills – targeted for acquisition have been established between 1937 and 2002. Planned expansion of these facilities, including the construction of new production lines, will take place within the existing boundaries of each facility and thus require no new land acquisition. No physical displacement has been associated with land acquired for quarry operations by the previous operators of facilities targeted by SSG for acquisition. These lands were leased from clusters of villages under the authority of the local government. Individual households who held use rights to the acquired land granted them by the affected village governments are reported to have been compensated for standing crops and provided alternative land elsewhere within each village’s boundary. Village governments whose land has been leased to these operators receive annual royalty payments based on the volume of raw material extracted. The same villages will be compensated under the same procedures for additional lands leased by the company should SSG exercise the terms of the lease.

The company has agreed to undertake an assessment of the environmental and social impacts of each greenfield cement plant and quarry site to achieve the objectives of PS 5. These assessments will include a compensation framework for affected individuals and an appropriate level of public consultation concerning the impacts of each project.

- PS6: Biodiversity Conservation and Sustainable Natural Resource Management:

IFC’s assessment considered the impact of Group’s proposed acquisitions and greenfield development activities on biodiversity and habitat.

SSG has acquired limestone usage rights in areas designated by the government for cement production in accordance with all local regulations. In addition, the company has paid fees to the authorities to be used to reestablish vegetation at the limestone quarries at the end of their operation. While there is no formal requirement for the submission of a quarry reclamation plan to obtain usage rights from the government, SSG has agreed to prepare quarry reclamation plans for all new quarries before operations begin and will also include the development of such reclamation plans in the CAP for EMS implementation. All of the quarries are part of larger continuous limestone formations and do not pose a risk with respect to endangering any isolated species specific to these locations.

Stakeholder Engagement

In addition to its overall efforts to reduce energy consumption and improve the quality of air emissions from each of its facilities, SSG engages in corporate support for local communities at the headquarters and at each of its operating units. These activities range from sponsorship of cultural events and local charities to the construction of elementary school buildings.

SSG also endeavors to ensure effective communication of its performance, principles and policies to all stakeholders – employees, customers, suppliers, investors, the Media and the public. Engagement with the public is undertaken through a corporate website as well as the Media. The Group website (www.shanshuigroup.com) provides timely and accurate information targeted to all Stakeholders.

This ESRS is also disclosed in local language at the following location: www.shanshuigroup.com
For questions to SSG please contact (in Chinese):

Mr. Li Yanmin, Vice General Manager
Shanshui Group,
Jinan Changqing District Industrial Park,
China

Telephone: 86-531-8360166
Fax: 86-531-7800741

Client Documentation

File Name	Actions
Shanshui_Group_CAP_4.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.

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