Salamander is a small oil and gas company that was recently established and is still in the process of maturing its environmental and social management systems. Following the field reconnaissance, which also included in-depth discussions with key staff of the Company, the findings are presented below.
IFC undertook a due diligence to assess the gaps between Salamander’s social and environmental management system and IFC’s Performance Standards. The Company is committed to comply with respective national requirements where it has assets (currently in Thailand, Indonesia, Laos, Vietnam and Phillipines) for management of environmental and social issues and with IFC’s Performance Standards on Social and Environmental Sustainability.
Thai Regulations for Environmental and Social Impact Assessments (“ESIA”)
Thailand has stringent environmental regulations which also include screening of socio- economic aspects of development projects. The Ministry of Natural Resources and Environment, the Thai environmental regulator, has recently issued two new guidelines on “Social and Health Impact Assessment” which are based on World Bank guidelines and policies.
The ESIA process includes a comprehensive public consultation program. The program is undertaken in a participatory manner that allows local communities to freely express their views and influence the decision making process on project design aspects such as pipeline route selection, etc. The public consultation process is divided into two phases. During Phase I, public meetings with project-affected communities are held in the early stages of the ESIA study. These meetings are open to all and include key representatives from affected villages, such as community headmen and teachers. The main objectives of these sessions are to (i) inform the local communities of the proposed project and associated activities and (ii) undertake an “Attitude Survey” (perceptions of local communities regarding the project). Phase II involves presentation of the Attitude Survey results to the local communities and a question and answer session on the draft ESIA.
Subsequent to the completion of the consultation process, the draft ESIA report is disclosed to local communities for comment. The final ESIA report is submitted for approval to the Thai environmental regulator. The final ESIA and relevant baseline studies are available to the public. The right to information is established in Thai regulations which require that information is made easily accessible to the public.
Indonesian Regulations for ESIAs
ESIA studies in Indonesia are governed by a Ministerial Decree, which outlines the requirements for environmental and social impact assessments. There are two types of studies which are initiated during different phases of development projects and depending on the scale of the project and associated activities. For oil and gas activities the following studies are required:
-Seismic and exploration activities: UKL-UPL (Environmental Management Effort-Environmental Monitoring Effort)
-Pre-operation: AMDAL (full EIA study)
-Operation: RKL-RPL (Environmental Management and Monitoring Plan). The RKL-RPL is revisited every six months to take into account changing environmental and social conditions
Community engagement is a requirement of Indonesian law and is undertaken throughout the ESIA process. The main objective is to inform project affected communities about the project and provide them with an opportunity to express their views on proposed project activities.
While the Company follows national Thai and Indonesian regulations with respect to managing social issues, a social management system will be established to facilitate activities such as land acquisition, resettlement and stakeholder engagement.
Laos Environmental Protection Law
Laos’ Law on Environmental Protection establishes principles, rules and other measures for the management, inspection, rehabilitation and protection of the environment, natural resources and people’s health to ensure sustainable national socio-economic development. EIA’s must be drafted in compliance with relevant prescribed regulations for all development projects with environmental and social impacts, together with mitigation management plans, and submitted to an environmental management and inspection agency assigned to consider and issue environmental certificates.
Environmental and social impact assessments must involve local administrative authorities, public organizations and people who will be affected by the development project and its activities. EIA’s are required to address various aspects including; use of appropriate technology, construction and maintenance of infrastructure; natural resource utilization; protection of biodiversity; protection of cultural heritage, historical and natural resource conservation areas; pollution control; and environmental rehabilitation. In addition the rights and duties of various stakeholders must be addressed, including District Environmental and Inspection Units; Village Administrative Authorities and the company in implementing environmental and social management plans..
Salamander’s Health, Safety and Environment (“HSE”) Policy
Salamander’s HSE Policy reflects the commitment from the Company’s Senior Management and employees. It commits Salamander to conduct its operations in compliance with appropriate Industry Best Practice which includes the safety and health of employees, protection of the environment, and in consultation with the surrounding communities in areas where Salamander operates.
As part of this commitment Salamander has established the following principles:
Promote a culture within the Company in which all employees share HSE commitment and are involved in the implementation of the HSE management systems.
Comply with applicable laws and regulations and apply recognized international standards where laws and regulations are not in place.
Establish accountability and responsibility for HSE within the organizational line management.
Ensure that employees and contractors are adequately trained and aware of the importance of the HSE aspects of their jobs.
Ensure that contractor’s policies are in compliance with those of Salamander Energy.
Seek viable ways to minimize the environmental impact of its operations, reduce waste generation, conserve resources and respect biodiversity.
Undertake appropriate reviews to measure progress and ensure compliance with Salamander’s HSE Policy.
Salamander is in the process of developing its Environment, Health, Safety and Social Management System (“EHSS-MS”), and as part of IFC’s investment in Salamander a gap analysis will be undertaken to determine what areas of the EHSS-MS need to be updated to reflect IFC’s Performance Standards (refer to action Plan). Of note, Salamander’s EHSS-MS is being developed to be in line with ISO 14001, OSHAS 18001, and Industry Best Practice.
Salamander’s approach to assess HSE aspects is risk-based, designed to control and monitor their operations in an efficient health, safety and environmentally sensitive manner. Salamander requires their contractors to develop their own management systems, which must be materially in line with Salamander’s HSE requirements and policy. This is reflected in all contractor’s agreements, and Salamander will apply procedures to manage third party performance
Salamander has committed to develop a screening mechanism for assessing environmental and social aspects of potential new acquisitions, to determine if they are in line with IFC’s Performance Standards and that there are no material non-compliances.
Salamander’s Corporate Social Responsibility (“CSR”)
Salamander has a CSR Policy which is in best practice compliance with the UK listing guidelines, since Salamander is listed on the main board of the London Stock Exchange. The CSR Policy outlines Salamander’s commitment for undertaking its operations in a manner that minimizes harm to the environment, maintains its social license to operate and ensures the well-being of its employees. The CSR Policy includes eight guiding principles that focus on the following themes – (i) providing a safe work environment, (ii) minimizing negative environmental and social impacts, (iii) maximizing positive social impacts, and (iii) continuous improvement of environmental and social performance. The CSR Policy is currently being revised to address Salamander’s expanding business interests.
In addition, Salamander has developed a Code of Business Conduct that outlines Salamander’s commitment to building positive community relations in areas where the Company operates. This commitment is reflected in a number of principles – including sharing information with impacted communities, encouraging a participatory approach to developing impact mitigation measures, and investing in local communities through employment generation and capacity building.
Salamander’s Labor and Working Conditions
Salamander,s Code of Business Conduct also outlines it’s commitment to appropriate business practices, including working conditions. The code applies to Salamander as well its contractors. The code outlines Salamander’s policy with respect to employment which includes the following main aspects: (i) equal opportunity, (ii) competitive terms of employment, (iii) safe and healthy working environment, (iv) compliance with national labor laws, and (v) adherence to and respect for human rights principles.
Salamander will use its best efforts to promote application of its Code of Business Conduct by its joint venture partners and suppliers. Salamander also undertakes country risk assessments for expatriate staff who are to be based in country offices.
Salamander is currently developing a Human Resources (“HR”) Policy for its operations in Southeast Asia appropriate to its size and workforce. Currently, terms and conditions of employment are outlined in all employment contracts. The terms of employment include a comprehensive medical coverage and entitlement to benefits for employees. Salamander’s practice has been to maximize the number local employees in its country offices and currently the majority of the workforce are local staff.
Salamander’s HR Policy will describe the Company’s approach to managing employees (permanent and temporary staff) consistent with the requirements of Performance Standard 2.
Grievance mechanism: Salamander exercises an open door policy and employees are able to express their grievances directly to country managers. As part of the HR Policy, Salamander will develop a system where employees may raise their workplace concerns to ensure that they are addressed in a timely manner and are documented. Currently Salamander has 28 full time employees based in Singapore, Indonesia and Thailand, plus 6 full time employees in Vietnam and Laos.
Salamander’s HSE Capacity
Health Safety and Environment and Corporate Social Responsibility authority rests with the Chief Executive Officer who issues the HSE Policy Statement, the Code of Business Conduct and the CSR values, and these key documents are reviewed annually as required under the HSE-MS. The Managing Director SE Asia is responsible for the implementation of the policies and the HSE-MS in all operations. HSE/CSR is clearly defined as a line management responsibility and each Country Co-ordinator takes the lead on HSE within their sphere of responsibility. The CEO and MD are additionally supported by the following full time staff: Head Corporate Affairs based in London; an HSE Coordinator based in the following country operating offices – Indonesia, Vietnam and Thailand (currently being recruited), and each project has in place a field HSE/CSR representative. In addition the Group is supported by a senior professional HSE Advisor.
Current HSE capacity in addition to the Executive and senior line management totals 7 full time HSE professionals (1 HSE/CSR Head, 3 country HSE Coordinators plus 3 field HSE representatives in Indonesia, Lao and Vietnam) and one part time (6/3 week rotation) Group HSE Advisor overseeing the group and currently based in Thailand. Salamander will update existing job descriptions for all staff engaged with HSE implementation at corporate, country and project levels (where the company is the operator) to ensure that roles, responsibilities and authority are clearly defined, and will review this regularly with respect to the Company’s rapidly expanding activities and operations (refer to Action plan).
Salamander’s Land Acquisition Activities
Activities in onshore exploration and prospecting blocks require certain land to be acquired on a temporary basis for exploratory work (seismic surveys, exploratory drilling, appraisal, approach roads, etc). If exploration blocks prove to be viable land may be required permanently for development of project facilities. There is an established process in Thailand, Indonesia and Laos for temporary use, or permanent acquisition of land for project development.
The land acquisition process in Indonesia is governed by the Basic Agrarian Law (1960) and Presidential Decree 55 (1993). Both of these laws establish the context and procedures for land acquisition with an emphasis on consultation and forms of compensation (for land titles, crops, buildings and any other structures). Compensation may be monetary, substitution for land and/or resettlement. Indonesian Law also recognizes customary rights to the land and thus those without formal titles are also entitled to compensation.
In Thailand, there are two different land acquisition processes, one for Thai companies and another for foreign companies. Foreign companies are only allowed to lease the land (for the life of the project). Land is returned to the owners after the project is decommissioned. For seismic activities, direct negotiations between the contractor and land owners takes place. A committee is established (consisting of the contractor company, local authorities and land owners) to negotiate the lease of the land and compensation for crops lost. The criteria for compensation of crops are standardized by the government and the negotiations for land lease are based on market prices. Public and cultural properties such as temples and canals fall under exclusion zones stipulated by the Thai government. For areas that fall under the jurisdiction of various governmental agencies, such as forests, negotiations take place with the relevant government departments.
Salamander has committed to the preparation of a Corporate Framework Land Acquisition and Compensation Plan (“LACP”) as part of the EHSS-MS. The LACP will outline the principles, guidelines and approaches to be followed in acquiring land for future activities, in order to meet the requirements of national regulations in countries where Salamander operates and IFC’s Performance Standard 5 (Land Acquisition and Involuntary Resettlement). More detailed LACPs will be prepared in future, if required, for site specific projects.
Non-operated Assets
Salamander’s asset portfolio includes producing and development assets, fields under appraisal and exploration prospects. Salamander has interests in both operated and non-operated assets.
E5-N and EU1 Concessions (“Sinphuhorm”) - Thailand
Salamander holds a 9.5 per cent indirect interest in the Sinpuhorm gas field in North East Thailand. The partners under the concessions for the field are Hess (35%), APICO (35%), PTTEP (20%) and ExxonMobil (10%). APICO is owned by 4 companies, one of which is Salamander with 27%. The field is operated by Hess. Production started at the end of 2006. Gas is processed at a dedicated facility (also operated by Hess and employing 20 staff) and is sold to the national oil and gas company PTT.
Hess contracts a private security company (unarmed) for the gas plant. There is an onsite medical support for the processing facility. For emergency conditions, Nam Phong hospital is used and for complex medical conditions and surgeries, Khon Kaen hospital is used.
Hess has a corporate HSE policy that also includes social responsibility (SR) and stakeholder engagement and an HSE-SR Plan. The operator follows Thailand environmental regulations and Industry Best Practices. As part of the monitoring program, the Government of Thailand conducts inspections on a quarterly basis through ONEP (Organization of Natural and Environmental Protection). The Department of Minerals and Fuels also undertakes audits of the operations.
The operator did not have any lost time incidents in 2007 (including the contractors’ employees).
The operator has in-house personnel for environmental and social management – (i) regional HSE-SR manager for Asia based in Kuala Lumpur; (ii) HSE manager, EIA specialist and SR manager based in Bangkok; and (iii) two SR coordinators and an HSE coordinator in Khon Kaen.
The SR coordinators based in Khon Kaen (gas processing plant) are responsible for government liaison, engagement with project affected communities and community development. There is on-going community engagement as follows: (i) engagement with local communities (monthly), (ii) activity-specific consultation sessions such as prior to 3D seismic, and (iii) high level provincial meetings with governors (quarterly).
The HSE and SR managers are responsible for developing management systems, monitoring mechanisms, social strategy and interface with the government.
The operator has in place a social investment program with an annually approved budget. The projects under this program are divided into fast track projects (the objective being to maintain a social license to operate), medium term projects (less than 5 years) and long term projects (more than 5 years). All projects are identified in a participatory manner through community engagement and local authorities through a ”Needs Assessment”. Hess also has screening criteria for project selection. The projects range from one-off school donations, scholarships for undergraduate education, a cattle project to assist livestock farmers to a forest fire prevention program.
The operator has a standardized land acquisition compensation process in line with Thai regulations. For Sinphuhorm, negotiations with 500 land owners for pipeline routing was undertaken in accordance with the Thai regulation for temporary use of the land. For crop compensation, DMF fixes the prices for lost and damaged crops based on best yield plus market price for each district over the previous 5 years. Compensation is paid for the total number of harvests in a given year. The contractor is typically responsible for compensation and directly negotiates with owners. Grievances associated with compensation undertaken by the contractor are submitted to the operator directly.
The operator consults directly with land owners to rent the land during construction and/or operation. The rents are based on prices fixed by the Government. For project components such as pipelines, the owners can use the land once the pipeline is buried.
For seismic activities, DMF fixes the rate of compensation but the responsibility of payment lies with the company. The contractor is responsible for managing the process. An official from DMF and the village headman are present during negotiation with land owners. For well pads currently in forest areas, Hess deals directly with DMF.
The operator has a grievance mechanism through which complaints are submitted to the village headman who delivers them to the operator. The operator keeps records of all the complaints filed and how they were resolved.
Block B8/38 Concession (“Bualuang”) - Thailand
Salamander has recently purchased GFI, a Canadian based oil and gas exploration and development company, with a 60 cent working interest in the Bualuang oil field located offshore in the Gulf of Thailand. The Bualuang oil field is located in water depth of 60 meters. Salamander is in the process of earning into this asset.
The production platform is unmanned and exports oil to the FPSO facility via a short pipeline. The FPSO can accommodate 31 personnel. The coast of Thailand is 114km to the west of the field. Fishermen use the area as fishing grounds. There is an exclusion zone of 500m. As required under Thai regulations described above, a consultation program was undertaken as part of the Bualuang EIA approval.
Offshore North West Java (ONWJ) Production Sharing Contract (ONWJ PSC) – Indonesia
Salamander holds 5 per cent interest in ONWJ operated by BP. The ONWJ PSC contract is valid until 2017. It has 6 participants, with BP and CNOOC holding the largest shares of 46% and 36.7% respectively. There are 190 platforms and onshore flowlines, export pipelines and receiving facilities.
The central processing facility (M&B) is ISO 14001 certified.
The operations in ONWJ have been ongoing for forty years and the coastal area covers approximately 250 km of coast line. BP has an ongoing social program that comprises community engagement, community development and managing social impacts associated with the operations. The majority of social impacts are associated with fishing communities in the area.
Community engagement is targeted at fishermen (80% of the population) who utilize the area for fishing purposes. Fishermen safety is the main focus area and a number of different methods are used to raise awareness of the fishermen who fish in proximity of the platform. Safety awareness sessions, radio communication and public awareness campaigns are the main activities.
The operator also regularly engages with communities to inform them of operational activities and share with them monitoring results. There are two community and external affairs officers.
The operator has a community development program for the three regencies in which they operate. The program has three focus areas – education, access to energy and enterprise development. The program is prepared in consultation with communities and local government and is presented to BP Migas, the industry regulator, for approval. As per Indonesian regulations, the Community Development Program is cost recoverable from BP Migas.
The operator issues a monitoring report every 6 months to BP Migas, various governmental agencies, fishermen groups and NGOs. The operator also holds a meeting in a location close to the operations to discuss the monitoring report findings.
A private security company patrols the platforms; they are unarmed. The operator also has agreements with the West Java police and alarm systems in the water. There is a 500m exclusion zone surrounding the platforms where fishing is prohibited.
South East Sumatra Production Sharing Contract (SES PSC) – Indonesia
Salamander holds a 5 per cent interest in the SES PSC located offshore North West Java. The PSC has 5 participants and is operated by CNOOC (with a 65.54% share).
The operator has an integrated health, safety and environment management system which is ISO 14001 certified by DNV Singapore. As part of the ISO certification, the operator is audited on a semi-annual basis for compliance. The operator provides training programs for their employees and contractors. Additionally, health programs and preventive medicine is provided for its employees and contractors.
The operator has emergency response and oil spill response plans and conducts training and drills with their employees and contractors.
The operator also has in place an integrated social strategy that comprises two main components – community development and stakeholder engagement.
The community development program is governed by Indonesian regulation “Guideline of Work No: 017/PTK/III/ 2005, Community Developments (Amendment no: 666/ BPD00000/ 2004-S1)”. Community development projects are identified through community engagement and local authorities. The operator has a number of guiding principles for project screening and selection and a monitoring mechanism for project implementation.
In addition to community development, the operator also engages in philanthropic activities (as part of its CSR program), such as donations and aid during natural disasters, sponsoring school tournaments, etc.
Community engagement is an on-going process and forms part of the community development program.
Glagah Kambuna Technical Assistance Contract (TAC) - Indonesia
Following the acquisition of GFI, Salamander holds a 35 per cent interest in the Glagah Kambuna TAC located in the straits of Malacca and offshore north Sumatra which contains the Kambuna gas and condensate field. The TAC is operated by Serica Energy (with a 65% share) first production is expected by the end of 2008.
Serica is currently in the progress of developing its HSE management system.
There is an on-going community engagement program (socialization program) for the construction phase which will be completed end of 2008. As part of the engagement program, notifications were published in local newspapers to inform the public about the project.
Serica is dedicating 1% of its profit for CSR related activities and community development. The community development program is currently focused on procurement from local communities. Serica is developing a community development plan for 2008-2009 focusing on education and capacity building for women.
Land acquisition was completed for the onshore pipeline route connecting the field to the gas processing plant in accordance with Indonesian regulations. All the land acquired consisted of palm oil plantations. The land prices and crop compensation were based on market value.
The main impact to fishermen is restricted access during the construction of the off-shore pipeline section. Post construction, there will be a 500 m exclusion zone.
Exploration and Appraisal Properties- Laos
A site visit was also conducted to the Company’s existing seismic exploration operations in Laos PDR. Salamander is the operator and seismic exploration activities are being undertaken by contractors. Salamander has established a health, safety and environment management system with which contractors are required to comply. Some environmental and social gaps were identified, in particular with the implementation of the management system, liquid and solid waste disposal, and labor and working conditions.
The Company’s sewage waste is currently discharged into a pond without treatment. The Company has installed monitoring wells in the vicinity of the pond to ascertain whether any ground water contamination has occurred. Measures to improve labor and working conditions are also being reviewed. The Company will prepare a Corrective Action Plan to address these gaps and mitigate the impacts of the exploration phase.
Portions of the seismic survey lines cross protected forest under IUCN category six (6), which allows for the sustainable use of the forest area by other land users. The Company’s activities have not had any significant impacts on these protected forest areas. The environmental screening report (HSE-020G Environmental Screening Savannahkhet PSC 2D Seismic 20-01-08) identified environmental protection measures which include a restriction on felling of trees larger than 10 cm in width in the course of seismic exploration and survey lines are re-routed to avoid large trees.
