26396 - ISD II

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Environmental & Social Review Summary

Project Number

26396

Company Name

INDUSTRIAL UNION OF DONBASS CORPORATION

Date ESRS Disclosed

Oct 16, 2007

Country

Ukraine

Region

Europe

Last Updated Date

Jun 3, 2021

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Dec 20, 2007
Signed : Jan 14, 2008
Invested : May 14, 2008

Sector

Integrated Steel Works

Industry

Manufacturing

Department

Regional Industry MAS LAC & EUR

Project Description

This project will continue the environmental upgrades of the three plants owned and operated by ISD and assure that the plants reach agreed performance goals within a set timeframe. Additional goals include strengthened water recycling to be achieved at DMK, fixed and immediate schedules for the close down of the open hearth furnaces at AMK, and details on the renewal and revamping of the sintering capacity at both AMK and DMK. A change in scope from rehabilitation of older blast furnaces to replacement with new technology is also included, to further improve the gas balances and energy efficiencies at the facilities.

Overview of IFC's Scope of Review

The three ISD plants (AMK, Alchevsk Coke, and DMK) are all well known to IFC and have been visited several times for technical and environmental appraisal as well as supervision over the last two years. The preparation for this investment included site visits to all three plants and a thorough review of the progress on the Corrective Action Plan (CAP) agreed and included in the original investment. The CAP has been updated (the revised CAP is now known as the Environmental and Social Action Plan (ESAP)) to reflect the achievement during the initial implementation period, and to include further details and a more specified time frame for later activities.

E & S Project Categorization and Applicable Standard

This project is being reviewed as a Direct Investment according to IFC’s Environmental and Social Review Procedure.
Based on a review of project information, the following Performance Standards (PS) are found relevant for the project:

- PS1: Social and Environmental Assessment and Management Systems with respect to the company’s management of its performance; compliance with national and local permitting requirements; and engagement with local communities.

- PS2: Labor and Working Conditions with regard to fair, safe and healthy working conditions at its facilities.

- PS3: Pollution Prevention and Abatement with regard to efforts to optimize resource inputs, energy efficiency, emission control, and waste minimization.

- PS4: Community Health, Safety and Security with regard to the impacts of the operations on the adjacent cities.

- PS5: Land Acquisition and Involuntary Resettlement: It may be necessary to resettle residents located within the original sanitary zone if the planned environmental upgrades are not achieved within a timeframe acceptable to the local authorities.

This is a category B project according to IFC’s Environmental and Social Review Procedure. The objective of the project is to promote environmental and production upgrades at existing facilities, thereby allowing these facilities to achieve compliance with local regulations and the IFC Performance Standards and EHS Guidelines. The project includes extensive rehabilitation and renewal of production equipment resulting in the closure of tandem furnaces, the addition of new sinter plant capacity and the rehabilitation of older sinter units, in addition to blast furnace renewals and rehabilitation. As a result of these changes considerable air emission reductions and improved energy efficiency will be achieved at the facilities.

Environmental and Social Mitigation Measures

The company has presented plans to address these identified impacts and ensure that the project will, upon implementation of the specific agreed measures, comply with the environmental and social laws and regulations of the host country, in addition to the and IFC Performance Standards and the applicable Environmental, Health and Safety (EHS) Guidelines. For information relating to the original IFC investment in 2006 (#24685) and the associated corrective action plan (CAP), please use the following ERS link:

The following paragraphs provide information with regard to potential impacts that will be addressed by the new project. These measures are also summarized in the attached Environmental and Social Action Plan (ESAP).

PS1: Social and Environmental Assessment and Management Systems:

ISD is in the process of building up its corporate environmental and social management system in accordance with the Corrective Action Plan (CAP) agreed between ISD and IFC in the spring of 2006. The resulting corporate Environmental and Social Management System (ESMS), designed to a standard similar to ISO 14001, will integrate the management systems of OJSC “Dneprovsky Metallurgical Works named after Dzerzhynsky” (DMK),Alchevsk Metallurgical Works (AMK) and Alchevsk Coke, respectively, in order to ensure a consistent corporate approach to environmental and social issues. The EMS system will also facilitate the transfer of knowledge of best practice between the different plants, hereby ensuring that best practice are incorporated in the upcoming CAPEX and environmental, health, and safety equipment upgrades performance.

PS2: Labor and Working Conditions:

Employees at ISD have access to free labor unions, as well as a safety organization with representatives from all employment levels and categories.

The AMK plant has satisfactory health and safety practices, although housekeeping needs to be improved in the areas scheduled for reconstruction. The Alchevsk Coke plant also has satisfactory health and safety practices and the housekeeping standard is acceptable throughout the operation. AMK/Alchevsk Coke is currently employing approximately 24,200 people and is a dominant employer in the town of Alchevsk (population of 120,000 inhabitants). The current project and ISD’s business projections indicate an unchanged employment situation for the foreseeable future.

DMK employs approximately 19,500 people and is a significant employer in the 270,000 inhabitant town of Dniprodzerzhynsk. As part of the privatization deal ISD will keep the overall workforce unchanged for a period of 5 years. In addition, ISD’s business projections indicate an unchanged employment situation for the foreseeable future. Although the DMK plant employs a satisfactory occupational health and safety regime, significant housekeeping improvements are necessary throughout the plant. The management is aware of this need, and initiatives will be undertaken in parallel to the overall upgrade program.

The occupational health and safety conditions at all facilities will continue to improve and approach typical western European standards as the ESAP is implemented.

PS3: Pollution Prevention and Abatement:

The initially agreed CAP has been updated to reflect the progress achieved during the first year of implementation, and has been strengthened in relevant areas. This revised CAP (known as the ESAP) is attached at the end of this document and only key changes from the original project are mentioned below.

- Alchevsk Metallurgical Works (AMK) and Alchevsk Coke-

The dominant particulate emission source remains, as expected according to the original CAP, the sinter plant. As part of the new ESAP, this plant will be renewed / rehabilitated in two stages. The first stage involves construction of a new plant to provide a part of the required sinter capacity. Once the new plant is operational, the older sinter plant sections will be dismantled and reconstructed according to modern environmental standards. A revised time frame reflecting the two phase approach has been agreed and included in the ESAP.

The second most important air emission sources at the AMK plant are the open hearth furnaces (OHF) and the tandem furnaces. As part of the ESAP, all the standard OHFs will be replaced by two new state-of-the-art converters over the winter of 2007/8. As a result, there will be no OHFs in operation as of spring 2008. The last tandem furnace (which has better energy efficiency than the standard OHF, but with identical emission control problems) will still be operational after the initial CAPEX program is completed. However, it will be scheduled for closure no later than 2012, as part of ISD’s development of a new hot metal balance at the end of the initial upgrade program. Interim progress steps have now been agreed and included in the ESAP to ensure the tandem furnaces will be phased out according to the agreed schedule.

The emissions from the Blast Furnaces (BFs) will be reduced through a combination of:

- construction of new BF capacity to replace existing BFs scheduled for phase-out and
- rehabilitation of the remaining BF capacity to include secondary emissions controls.

A detailed program for the planned BF work is included in the ESAP. The replacement and rehabilitation of the BFs, in addition to the installation of converters to replace the OHFs, will result in an improvement in the overall gas balance and energy efficiency of the steel complex and create a surplus of low calorific gas. To utilize the low-calorific value gas a series of power generators will be installed. The total air emission control program will bring AMK in compliance with local regulations, and well within the World Bank EHS Guidelines, and will allow the sanitary zone around the plant to be reduced. This will reduce or eliminate the need for further resettlement of local residents.

AMK is also working on minimizing its generation of solid waste. In this respect the dust from the BFs and the new converter operations will be collected and directed back to the sinter operation for reuse as raw materials. Slag from the production process is further crushed and used as a cement additive, as well as for other construction purposes. It is expected that these measures can reduce the slag deposits created by AMK’s operations prior to the ISD takeover.

AMK has, as part of the mill upgrades, improved its water recycling and is now recycling more than 97 percent of its process water requirement of 25 million m3/month. All water that is not recycled receives treatment, including a root-zone treatment before being discharged (0.2 million m3/month) to a local river.

The Alchevsk Coke plant is located adjacent to the steel operation and shares utilities with AMK. Alchevsk Coke is a well operated plant with good housekeeping, well maintained coking batteries, and minimal leaks from coke battery seals. The current batteries use wet quenching, however a new battery with state-of-the-art technology, including dry quench and heat recovery, is expected to be fully operational before the end of 2007. The plant employs full chemical treatment of its waste gasses and 100 percent of the coke oven gas is utilized for a combination of firing the coke batteries, power generation and steel plant production needs. The direct emissions at the coke batteries comply with the World Bank EHS Guidelines.

The Alchevsk coke operation has a special water treatment system designed to reduce the phenol components (phenol level after treatment is 0.18 mg/liter) before the water is used in the wet quench system. There are no wastewater discharges from the coke plant.

Both the AMK and the Alchevsk Coke plant have an inherent risk of undetected soil contamination caused by many years of heavy industry operation. A soil and ground water investigation program has been established and agreed to determine the extent of any contamination problems. Based on the outcome of the investigation it is expected that a remediation plan will need to be negotiated with the local authorities.

Carbon dioxide emission for the Alchevsk complex has been estimated at approximately 7.4 million tons in 2007, equivalent to 2.24 tons CO2 / ton steel. This is above the typical industry average of 1.75 - 2.0 tons CO2/ton of liquid steel. The higher levels are mainly due to a combination of the downstream processing of the steel after the liquid stage, as well as the continued operation of some OHFs in the first part of the year and the tandem furnaces throughout the year. This performance parameter will be significantly improved by the investment program.

- OJSC “Dneprovsky Metallurgical Works named after Dzerzhynsky” (DMK)-

The DMK plant only emerged from its past bankruptcy proceeding in January 2006, and it has therefore only undergone a little more then one year of transformation under the new ISD ownership. Current operations still entail significant emissions, discharge, and solid waste issues. ISD and the DMK management have used the period from the facility’s privatization at the end of 2003 until the resolution of bankruptcy in January 2006, to prepare plans for overcoming these environmental issues. The investment and upgrade program is impressive and will completely change the operation’s environmental performance once implementation is complete.

By far the most dominant particulate emission source at the DMK plant is from the sinter operations, which has severely malfunctioning filters and significant diffuse emissions. The sinter plant particulate emissions are estimated to account for 80 percent of the total emissions from the steel plant, although no precise measures. As part of the agreed ESAP, DMK has submitted a plan for replacing part of the sinter operation with a new plant, thus allowing the load on the existing plant to be reduced and for the unit to undergo a complete rebuilding to comply with the World Bank EHS Guidelines. The complete plan, including required schedules, is described in the ESAP.

The emissions from the Blast Furnaces (BFs) at DMK will be reduced through a combination of:

- building new BF capacity to replace BFs scheduled for phase out, and
- rehabilitation of the remaining BF capacity to include secondary emissions controls.

A detailed program is included in the ESAP. The replacement and rehabilitation work at the BFs will improve the gas balance and energy efficiency of the steel complex.

In contrast to the AMK operation, the DMK plant had its OHFs replaced by two converters several years ago. The remaining problem concerns the secondary control of emissions, which the original building was not designed to handle. ISD has carried out a study of the options for secondary emission control and a reasonable timeframe for implementing a solution is included in the ESAP.

Lime production at DMK is currently emitting flue gas with particulate concentration of approximately 200 mg/Ncm. As part of the ESAP, DMK has agreed to evaluate two options for bringing this emission in line with World Bank EHS Guidelines. If the current emission control filters can be upgraded to keep particulate emissions below 100 mg/ Ncm, then this has to be carried out before the end of 2007, and IFC will accept this performance level for continued operations. If the filters cannot be upgraded to meet this level (only acceptable for existing operations), then DMK will need to replace the filters with new units, and comply with the standard 50 mg particulate/ Ncm requirement as per World Bank EHS Guidelines.

DMK has accepted that its management and handling of solid waste needs to be improved. Initiatives are being undertaken to improve handling practices to avoid the mixing of different waste types and to increase the reuse of solid waste wherever possible. It is expected that these initiatives will allow DMK to reduce the quantities of existing slag deposits created by operations prior to the ISD takeover.

DMK is using 18.8 million m3 of water per month. This water is taken from the Dnipro River located to the north of the facility. Discharge water is treated in a 45 ha settling pond followed by a 45 ha aeration pond. The initial settling pond is heavily silted and a silt removal program has been implemented to remove the iron oxide containing silt for recycling in the sinter plant. Removal of the silt from the settling pond will ensure that the pond adequately treats the discharge water. The aeration pond is functional but will undergo a check to ensure the system can fully comply with both the local requirements and the World Bank EHS Guidelines.

DMK has over the last year significantly improved its water recycling practices. As a result the initial 62 percent documented recycling rate has now been improved to 80 percent. At the end of the investment period this rate will be brought in line with industry practice of 90 percent in accordance with the ESAP.

The 2007 carbon dioxide emission for the DMK facility is estimated at 2.0-2.1 tons CO2 / ton steel, slightly below the AMK data due to the lack of OHF and tandem furnaces. The total annual carbon dioxide emission from DMK will be in the order of 6.6 million tons.

PS4: Community Health, Safety and Security with regard to the impacts of the operations on the adjacent cities.

At both the AMK and DMK facilities, the main community health, safety and security concerns are linked to significant emissions of particulate matter (PM) resulting in elevated levels of PM in the ambient air quality of the nearby cities.

At the AMK plant the dominant particulate emission source is the sinter plant, with other important sources coming from the current open hearth furnaces (OHF), the tandem furnaces, and the Blast Furnaces (BFs). Control and reduction of all these sources are included in the ESAP, and the air emission control program will bring AMK in compliance with local regulations, well within the World Bank EHS Guidelines, and will allow the sanitary zone around the plant to be reduced. This will reduce or eliminate the need for further resettlement.

As with AMK, the dominant source of particulate matter emissions at the DMK facility is the sinter plant. The agreed ESAP is designed to fully address this issue, and the focus is on achieving necessary improvements to ambient air quality in order to reduce the required sanitary zone and avoid further resettlement.

PS5: Land Acquisition and Involuntary Resettlement: As described above there could be a need to resettle residents located within the original sanitary zone if the planned environmental upgrades are not achieved within a timeframe acceptable to the local authorities. The authorities have agreed to a schedule based on the ESAP, and it is therefore not expected that resettlement will be required. Nevertheless ISD has committed to comply with the requirements of PS5 should any resettlement be needed.

Stakeholder Engagement

As the main employer ISD plays a key role in the communities around Alchevsk and Dniprodzerzhynsk. ISD maintains open and ongoing communications with local and regional authorities with regard to the environmental conditions of the plants, and their impacts on local communities. As part of ISD’s commitment to community engagement, this ESRS and the attached ESAP will be locally disclosed to the public to ensure that stakeholders are fully informed as to the planned improvements going forward.

Contact details for the community engagement representative for ISD, at the DMK, AMK and Alchevsk Coke facilities respectively, can be reached by contacting:

Mr. Valentine Smirnyagin
Telephone: +38 044 591 6466
Telefax +38 044 537 7946
E-mail: valentine.smirnyagin@gmail.com

The full text of the this ESRS and its Environmental and Social Action Plan (ESAP) will be disclosed in the local language at the Information Billboards at main plant offices at AMK, DMK, and Alchevsk Coke, respectively.

Client Documentation

File Name	Actions
ISD II_ESAP 09182007.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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