26437 - PETLAS

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Environmental & Social Review Summary

Project Number

26437

Company Name

ABDULKADIR OZCAN OTOMOTIV LASTIK SANAYI VE TICARET ANONIM SIRKETI

Date ESRS Disclosed

Mar 14, 2008

Country

Turkiye

Region

Central Asia and Turkiye

Last Updated Date

Nov 30, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Jun 14, 2008
Signed : Jun 23, 2008
Invested : Dec 15, 2008

Sector

Motor Vehicle Parts

Industry

Manufacturing

Department

Regional Industry MAS MCT

Project Description

Abdulkadir Ozcan Otomotiv A.S. (AKO) established in 1970 is a Turkish family owned company and is a leading distributor and seller of mainly automotive tires as well as batteries, chains and wheel rims. In 2005, AKO acquired Petlas A.S. (Petlas or the company), the fourth largest tire manufacturer in the country , in order to diversify out of distribution and acquire its own tire production capacity.

Petlas was established as a state-owned company to produce tires for both the commercial and defense industries in 1976. Petlas has traditionally focused on producing tires for tractors, heavy duty equipment and heavy commercial vehicles (HCV) and positioned itself as the clear leader in these segments in Turkey. Revenues from the passenger cars and light commercial vehicles (LCV) segments have historically been lower, the company continues focusing on commercial markets through the investment projects described below.

Petlas revenues increased significantly thanks to the strong market presence and distribution network of AKO and the focus on export markets following the acquisition in March 2005. AKO is undertaking an investment program to expand its distribution network and modernize Petlas’ operation (altogether, the “project”). Strategically, AKO aims for Petlas to maintain its position in tires for tractors and heavy duty equipment, while playing an increasing role in the automotive tire sub-sector in the aftermarket.

The project, estimated to cost around $188 million, includes the following components:

Around $32 million investment to increase the capacity and modernize the operations of Petlas in automobile tire manufacturing. This sub-project aims to convert the technology from conventional to radial and is expected to increase the Company’s capacity from 100,000 to 1.8 million units per year;

Around $188 million investment to increase the capacity and modernize the operations of Petlas in truck and bus tire manufacturing. With this sub-project company will have a capacity of 500,000 TBR tires per year based on radial technology in addition to existing 180 000 conventional Truck Bus tires per year capacity.

Overview of IFC's Scope of Review

IFC’s review comprised a site visit to the manufacturing plant in Kirsehir which was supported by the documents provided by Petlas, including certain internal policies and procedures, reports to local regulators, impact assessments and performance tracking records related to the environmental management system, various health and safety records and the company’s on-going action plans.

Meetings were held with the Plant Manager and the teams from the following departments:

- Quality Operations
- Occupational Health and Safety/Environment
- Human Resources and Industrial Relations
- Production and Maintenance

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 potential impacts which must be managed in a manner consistent with the following Performance Standards:

- PS1: Social and Environmental Assessment and Management Systems with regard to the Company’s management of its performance, compliance with national and local permitting requirements; origin of raw materials and supply chain; and engagement with local communities.
- PS2: Labor and Working Conditions with regard to fair, safe and healthy working conditions at its facilities and compliance with national labor laws.
- PS3: Pollution Prevention and Abatement with regard to efforts to optimize resource inputs, energy efficiency and waste recycling and minimization in the operation of its facilities.
- PS 4: Community Health, Safety and Security with regard to life and fire safety management at each of the Company’s storages facilities as well as the impact of the facilities on surrounding communities

The company plans to acquire an inhabited land in Central Anatolia for the construction of its new plant for TBR tires. While potential impacts related to PS5: Land Acquisition and Involuntary Resettlement, PS6: Biodiversity Conservation and Sustainable Natural Resource Management and PS:8 Cultural Heritage are expected to be therefore insignificant at this early stage, nevertheless, they will be evaluated comprehensively during the formal Social and Environmental Impact Assessment to be conducted by an independent certified institution contracted by the company.

Specific key environmental and social issues assessed include:

- Social, environmental, health and safety management systems
- Due diligence and formal social and environmental assessment of the land acquisition, construction and operation of the radial tire plant
- Handling and storage of hazardous substances
- Labor conditions
- Workplace health and safety (exposure control to dust and chemical substances, machine guarding, noise, drinking water supply and other issues)
- Management of wastes, water effluents and air emissions
- Consumption of natural resources / Energy efficiency
- Community, health, safety and security
- Involvement in defense sector

Since the potential adverse effects arising from these issues are limited, reversible and may be readily addressed through mitigation measures, this is a Category B project.

Environmental and Social Mitigation Measures

The sponsor has described how the project will comply with the host country laws and regulations as well as with the IFC’s Performance Standards on Social and Environmental Sustainability and industry guidelines through continuation of existing management practices and implementation of agreed additional measures. The information about how these potential impacts will be addressed by Petlas, is summarized in the following paragraphs and in the section about community engagement.

- PS1: Social and Environmental Assessment and Management Systems:

Petlas adopted Total Quality Management Principles in 2001 and was nominated for the National Quality Award in 2004.
The company has been certified by TUV/NORD - TUV/CERT according to the international standards of the ISO 9001 Quality and the ISO 14001 Environmental Management System since 1998 and 2004 respectively. The company is now in the progress of establishing an Occupational Health and Safety Management System according to the OHSAS 18000 standard. These international standards as well as IFC requirements mandate the environmental, health, safety risk and impact assessments both for existing operations and future projects. The company will incorporate in its management systems IFC’s Performance Standards on social and environmental sustainability.

As indicated previously, a specific environmental impact assessment including health, safety and social aspects as well, will be conducted for the new radial tire plant. The assessment will cover land selection, construction and operational stages.

- PS2: Labor and Working Conditions:

Labor Relations

Petlas’ Human Resources (HR) Policy aims to create and maintain a fair, healthy, safe, productive working environment with particular attention to transparent management and employee satisfaction.

The company employs around 1250 employees in its plant at Kirsehir. 60 % of the labor force is directly employed in administrative and technical areas related to the production operations. Contractor employees work in warehousing, housekeeping and security. Both direct and contracted workforce benefit from effective development, training, performance evaluation and rewarding programs.

Petlas has confirmed that it complies with all relevant labor laws in Turkey both for its direct and contracted workforce. The country laws address the same key labor issues as does PS2 including working relationships, non-discrimination, grievance mechanism, child and forced labor indicating that the company’s existing labor practices are consistent with all of the major elements of PS2. The minimum age of employment is 18 years. Blue collar labor force of Petlas is unionized and the company negotiates a new labor contract with the union every three years. The last three-year-contract was signed in January 2007. For all the work force, there are procedures which describe formal employee appraisal process based upon equal opportunity, terms and conditions of the employment and the rights of the employees. The company has reviewed PS2 and confirmed that its HR system will comply fully with all of its provisions. Following review of Petlas’ employment practices, IFC agrees with this conclusion.

The construction of the new production plant will not cause any retrenchment, since current activities will continue in Kirsehir. The proposed investment program will create an additional permanent employment of about 690 local people at the first phase of the project and gradually increase with further expansion projects.

Occupational Health and Safety

Petlas is in the process of establishment of an Occupational Health and Safety Management System according to the international standard of OHSAS 18000. Workplace risks are being assessed and measures for risk minimization taken progressively. Machine safety has been improved and exposure to carbon black dust reduced at certain areas. The company will implement further upgrades for machine safeguarding and for protection of employees from dust release especially at the low mill area of mixing operation and at the loading area of carbon black. Workplace industrial hygiene parameters which are currently monitored include illumination, noise, dust, certain chemicals and relevant upgrading of installations is continuing. Quantitative assessment will be extended to make sure that all critically hazardous chemicals and thermal stressors are covered.

The company is targeting minimized use of hazardous substances in its operations for environmental, health and safety reasons. Open handling of hazardous organic solvents is avoided as much as possible through closed transfer systems and other good engineering practices. The company has a complete information about the MSDSs of the chemicals used in its operations and has prepared matrix information sheets summarizing key safety messages for each chemical. The facilities are equipped with strong fire detection and fighting systems and the systems are currently under review. Means of emergency egress, signing and lighting will also be reviewed and deficiencies will be eliminated as necessary. At the areas where flammable materials are handled, stored or transferred, a professional ATEX (atmospheres explosives) will be conducted to confirm compliance with international standards and to identify any need for further design to maximize protection.

Employees are provided with regular medical examinations and vaccination programs in conjunction with their specific workplace risks. Pre-hire medical examination will include pulmonary and hearing tests. Injury rates are carefully tracked and significant reduction has been recorded over the last three years. Investigation, reporting and communication system for incidents as well as for near misses is strongly implemented. The company has a compulsory training program which includes generic environment, health, safety management principles, control of workplace specific risks and emergency response procedures.

For the construction operations, the company will develop a contractor selection criteria including consideration of their occupational health and safety performance giving priority to the certified constructors on health and safety management systems. Insurance requirements to cover all construction employees as well as health and safety procedures will be included in detail in the contractor agreement. Petlas will develop an internal regular inspection mechanism to ensure that the contractor works according to the conditions of the agreement during the construction.

- PS3: Pollution Prevention and Abatement:

Petlas has an environmental management system certified according to the international standard of ISO 14001. Environmental assessments are regularly conducted for existing operations, objectives and targets are defined annually for continual improvement. Comprehensive environmental assessment will be undertaken before starting the expansion project.

Good performance results have been recorded in recent years especially in terms of water and energy conservation and there are on-going programs to reduce consumption. The company will work closely with IFC in reducing energy consumption of its existing operations, in developing design and defining energy efficient technologies for the new radial tire plant and will communicate to IFC detailed regular information about the progress of its energy efficiency programs and consumption data.

The installed electrical capacity for the current operations is 41 MW. Daily consumption of lignite, used as boiler fuel, is between 120 and 150 tons/day. Electric power for the production operations and subsidiary activities of Petlas is drawn from the national grid. Petlas has three boilers; one of them is operated with natural gas whilst the other two with lignite. For its daily routine operations, Petlas recently switched from natural gas to lignite due to dramatic increase in natural gas prices while lignite remains as a local source of fuel easily available. The natural gas boiler actually serves as back-up energy source. In order to prevent deterioration of air emissions due to the use of lignite, Petlas is in progress of installing a flue gas desulfurization unit with continuous monitoring system of emissions. The equipment will include a wet scrubber which in addition to control of acidic combustion products, will also remove particulate matter from boiler flue gases, to the extent that IFC and local compliance is expected. Furthermore, the height of the process stacks are increased in order to acquire air emissions permit according to the new regulations. NOx emissions are expected to remain compliant with local regulations and IFC guidelines since the combustion temperature will be kept below 1200 degrees C. For process emissions control, the company installed dust collectors to capture carbon black dust arising mainly from mixing processes. Air emissions monitoring procedures and techniques will be reviewed and enhanced as necessary (i.e. to include VOCs) to ensure compliance with IFC guidelines’ requirements.

As indicated in the previous section, the company is targeting substitution of hazardous substances used in its operations. Part of the organic painting chemicals have already been replaced with water based formulations. The company will look for non-hazardous, if this is not possible, for less hazardous alternatives of hexane, hydrazine and other hazardous chemicals which are currently used at large quantities and stored at on-site underground storage tanks. Where substitution is not possible, other techniques for minimization of hazardous chemicals will be developed. Petlas will review its infrastructure and procedures to identify potential needs and take action accordingly to ensure further soil and underground water protection. The refrigerant gas used in current operations is Freon 22. The company will develop a procedure to avoid purchasing of ozone depleting substances in its future operations.

Waste generated at the site is properly disposed of according to the local conditions and regulations when recycling or reuse is not practicable. Types and quantities of all wastes including both hazardous and non hazardous are closely tracked. Water for the plant is drawn from underground sources and water consumption is carefully monitored. The biological wastewater treatment system built in 1984 designed to treat 110m3/hr is now used at half capacity given the significant reduction of water consumption. Tertiary treatment unit consists of chlorination of wastewater before discharge to the receiving media (Golhisar river) which is used as a source for irrigation by the municipality. The wastewater parameters are regularly monitored and no regulatory uncompliance has been observed. The wastewater treatment procedure will be reviewed and enhanced to cover additional parameters required by the IFC guidelines. A permanent monitoring system for critical parameters will be established to ensure safe discharge and the disinfection system will be upgraded as necessary. The company will also upgrade its on-site drinking water supply system.

- PS4: Community Health, Safety and Security:

Petlas is located outside of the city of Kirsehir and mainly surrounded by agricultural land and initial accommodation facilities which have been later converted to a university campus. Potential impacts on community health and safety from routine operations of Petlas are controlled as described in the previous sections. As part of its overall management system for its operations at Kirsehir, Petlas has established Fire Safety and Emergency Response Plans which consider situations that could affect its employees, its properties as well as the communities outside the plant boundaries. The company has its own response teams and a security force properly trained to address emergency situations and drills are undertaken periodically in conjunction with the local fire and emergency response providers. All applicable measures relevant to the construction and production operations will be taken to ensure community health, safety and security at the location of the new radial tire plant as well.

Stakeholder Engagement

Petlas operates under a set of policies including commitments for excellence in business ethics, management transparency, social responsibility and total quality management integrated with appropriate environmental, health and safety practices. Mission and vision statements as well as the management policies are publicly disclosed in the company web site: http://www.petlas.com.tr The web site displays also contact details for receiving and responding to questions, concerns or complaints raised by nearby communities or other stakeholders. Further information about contact details are also provided below.

As a former state owned company, Petlas actually generates less than 1% of its revenues from production and sales to the defense industry in Turkey. Over the next few years, this figure is expected to decrease as the company continues focusing on commercial markets. Furthermore, the company has confirmed that the volume of the defense industry tires produced will not expand in the long term.

Kirsehir where Petlas is located, is one of the 36 cities in Turkey (out of a total of 81) where incentives are provided by the Government in order to attract private sector investment and increase income per capita. Petlas is the largest employer in Kirsehir and will strive to develop community outreach programs within the region. The sponsor actually supports several social aid campaigns and promotes activities to increase level of women education.

Client Documentation

File Name	Actions
Petlas ESAP.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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