26792 - Kronostar III

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Environmental & Social Review Summary

Project Number

26792

Company Name

SVISS KRONO, OOO

Date ESRS Disclosed

May 21, 2008

Country

Russian Federation

Region

Europe

Last Updated Date

Nov 30, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Sep 16, 2008
Signed : Dec 4, 2008
Invested : Aug 26, 2009

Sector

Wood Panels and Engineered Wood Products

Industry

Agribusiness and Forestry

Department

Regional Industry MAS LAC & EUR

Project Description

Krono Holding (the sponsor) through its Russian subsidiary, Kronostar, has implemented one of the largest downstream investments in the Russian forest sector of the past couple of decades. This Euro 350 million composite panel facility was implemented in phases starting in 2003. Earlier phases of the project were funded in part by IFC.

The project currently under consideration involves

- the financing of a project cost overrun, caused in part by an expanded environmental protection scope (over and above the original requirements) of project phases I and II, and ii) the financing of production capacity expansion. Total project cost is estimated at Euro 120 million of which Euro 100 million represents overruns and expanded scope of the project which has already been financed with a combination of equity, subordinated loans from the Sponsor and short term debt from Russian banks. A resin plant may be constructed at some time in the future, though that is not included within the cost of the currently considered project.

Overview of IFC's Scope of Review

The review of this project consisted of appraising technical, environmental and social information submitted by Kronostar to IFC as part of its regular Environmental and Social reporting for the previous investments, and a site inspection visit undertaken in January 2008.

The documents reviewed included:

- Annual Monitoring reports provided to IFC for project Phases I and II
- Updates of Corrective action Plan for years 2005 and 2006 dated January 2008
- Environmental Review Summaries (ERSs) for the previous Kronostar I and II investments

These ERSs and their associated Action Plans may be viewed at the following links:

Project 20425

Project 20419

During the site visit of the Kostroma Oblast operations, in Sharja, interviews were carried out with the site’s General Manager, the Company’s Environmental Advisor, who is also a Board member, and managers responsible for the Environmental and Safety Control Department and the Occupational Health and Safety (OHS) manager.

E & S Project Categorization and Applicable Standard

While all Performance Standards are applicable to this investment our review indicates that the investment will have impacts that must be managed consistent with the following Performance Standards:

- PS 1: Social and Environmental Assessment and Management Systems
- PS 2: Labor and Working Conditions
- PS 3: Pollution Prevention and Abatement
- PS 4: Community Health, Safety, and Security
- PS 6: Biodiversity Conservation and Sustainable Natural Resource Management

No project impacts relating to the following Performance Standards were identified at appraisal for the reasons listed:

- PS 5: Land acquisition and involuntary resettlement, because Kronostar already has all the land it needs for manufacturing and forestry operations;
- PS 7: Indigenous People, as no indigenous people are found in the area;
- PS 8: Cultural Heritage, as no cultural heritage has been found in the affected area.

The main potential adverse social and environmental aspects of projects such as this are management of social and environmental issues, labor and working conditions, emissions to air and water, formaldehyde “off-gassing” from product and sustainability of wood supply. These are all issues which are limited in scale, reversible and may be managed by readily available techniques.

This 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 that may result have been or are being avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria.

Environmental and Social Mitigation Measures

Kronostar designed, built and operates this facility to world standards of environmental protection. As was explained earlier in this document, part of the cost overrun was incurred to fund environmental protection equipment unexpectedly required by the local regulators. Environmental Corrective Action plans agreed during negotiation for project phases I and II have been completed in full. Kronostar’s procedures and systems used to mitigate potential adverse environmental and social impact of the project are described in the sections which follow.

- PS1: Social and Environmental (S&E) Assessment and Management Systems:

Environmental & Social Assessment-

Kronostar’s operations include regular environmental assessment following the procedures listed in the company Environmental Management System as well as regular external audits. With regards to local permits, Kronostar is fully compliant with Russian regulations and with IFC Environmental, Health and Safety guidelines.

Management Systems-

As was previously required Kronostar obtained ISO 14001 certification of its environmental management systems in July 2005, valid until April 2008. OHSAS 18001 certification of the occupational health and safety management (OHS) system was obtained July 2005, valid until April 2008. Audits for both certifications were carried again in June 2006 and corrective actions were taken on discrepancies and audited again in September 2006. The certification of both these management systems will be renewed.

Kronostar’s Environmental Advisor is a member of the company’s board, thus indicating the attention given by the Company to environmental and social matters. Well established company departments for management of environmental and OHS matters are in place, reporting to the Environmental Advisor.

- PS2: Labor and working conditions:

IFC’s assessment considered terms of employment, as well as safe and healthy working conditions.

Kronostar has a range of human resources policies and procedures which are designed for compliance with Russian labor law, which is in turn very closely aligned to IFC’s requirements in this area as defined by Performance Standard 2.

Human Resource Policy and Management-

Kronostar has developed a Human Resources policy and adheres to the requirements of national Labor Law in all respects in the management of its workforce, including employee relations with management, hiring and firing, wages and benefits.

Working Conditions and Terms of Employment-

All workers have a written contract which defines the rights and responsibilities of both employer and employee. These are open-ended contracts, retirement is at 55 for women and 50 for men; and medical insurance, pension scheme and salaries are awarded at levels well above local industry standards. In addition, workers living in Sharja are provided free transport to and from the plant, and the canteen on site, while not free is heavily subsidized.

All workers are provided with medical insurance free of charge as Kronostar has negotiated a deal with the local hospital for admission of its workers; all workers are submitted to an annual medical test.

Workers come from a large area stretching up to 300 - 400 km away and find accommodation in the near by town of Sharja, the company also provides accommodation on site for specialized technical employees that do not stay on a permanent basis and for visitors

Worker’s Organizations-

There are 2 unions within the company. One is the Forestry Union and the other is a local independent union.

Non-discrimination and Equal Opportunity-

The total number of workers is 1200 with 25% women in the plantations and 85% women in the lamination workshop. Kronostar assesses employee performance based on merit, taking into account delivery of objectives and targets, work experience, and leadership potential. All promotions are reviewed by senior management. Overall there is approximately a 50/50 gender split in the workforce.

Additional benefits provided by Kronostar to ensure non discrimination include child care, and various social benefits, pregnancy benefits of 4 months at full pay that exceed Russian requirements, plus 18 month s at full pay at a less demanding work station than those previously occupied.

Grievance mechanism-

This is operated both by the unions and through a box for complaints and a suggestions box both located in the company canteen. Submissions to both are regularly collected and reviewed by the Human Resources department.

Protection of the Workforce-

Kronostar does not use or benefit from child labor or forced labor in either its manufacturing or forestry operations.

Occupational Health & Safety (OHS)-

As previously indicated, Kronostar has adopted an OHS management system which has been certified compliant with the requirements of OHSAS 18001. A review of accident statistics showed few accidents; those that do occur are followed up to identify causes and actions plans established to prevent recurrence. Positive safety culture is reinforced by a cash bonus pool that is paid to workers with a good safety record and who can demonstrate regular use of personal protective equipment.

Housekeeping is generally good, although in certain areas, use of hearing protection and masks might be better enforced. Ambient air quality monitoring has recently been instituted, though results were not available to IFC at the time of writing.

The fire safety system which includes spark detection and drenching systems in dust and fume extraction systems, and wood dust storage F&S systems is fully automated and considered state of the art. Kronostar has designed and implemented an emergency preparedness and response plan tailored to the risks of its operation and will adapt this as the site evolves.

- PS3: Pollution Prevention and Abatement:

IFC’s assessment considered Kronostar facilities operations with regard to emissions to air and water; management of solid waste; and use of waste wood and wood chips from local saw mills as raw material.

Emissions to Air-

All dryer emissions and emissions formed during board curing are collected and passed through a wet electrostatic precipitator. In addition, the fiber dryer is a high air volume, low temperature unit that limits emissions of VOCs.

Emissions from numerous point sources are monitored with monitoring showing compliance with IFC requirements.

Liquid Effluents-

The waste water treatment plant (WWTP) has 4 aeration tanks and a sludge separator. It is very well maintained and monitored and treated effluents are re injected into the process – to the glue workshop- as a result there is no discharge of process effluents to surface waters.

Kronostar also has an extensive system to collect and filter all storm water, arising from rain or snow melt that leaves the site.

Energy management –

The thermal energy requirements for the process are met by a biomass boiler which burns low value wood waste and pressed WWTP sludge. This boiler burns all process residues. Stack emission monitoring has demonstrated compliance with IFC and local requirements.

Greenhouse Gas Emissions-

The project does use some hydrocarbons as support fuels and for vehicles. All electricity is imported. However, much of its thermal energy is derived from wood waste. In addition, manufacture of wooden products sequesters carbon the form of the durable product manufactured from Kronostar’s product. IFC estimates that the project provides a net carbon sink of approximately 200,000 tonnes CO2 equivalent annually. Kronostar has engaged in a research project to confirm the carbon profile of its activities.

- PS4: Community Health and Safety:

Product Safety-

Kronostar has adopted E1 standard resins, which minimize formaldeyhyde emissions from manufactured board. Kronostar’s productmeets or exceeds the most demanding safety standards worldwide and Kronostar is ahead of most competitors in this respect.

Traffic –

Kronostar’s wood handling and product transport operations do create traffic.
The Kronostar transport fleet of the own harvesting companies are according to the international standards of health and safety and achieve the Euro-3-Standard.

According to the regulation in the RF, the health and safety conditions of the transport fleet are certified each year by the local technical inspection authority.

- PS6: Biodiversity Conservation and Sustainable Natural Resource Management:

Kronostar obtains around 50% of its wood needs from its own concessions which total some 325,000 hectares. In compliance with actions previously agreed with IFC, Kronostar has achieved FSC certification of sustainable forest management practices in its own harvesting operations.

Again, in full compliance with previous agreements, Kronostar has developed and is implementing a policy for outside suppliers containing a detailed tracking system to ensure legal origin for such wood and compliance with forest management criteria for wood procurement. All this information is recorded in the felling permits issued by the district forestry department. Regular inspections are also carried out by “Rosprirodnadsor”, the Russian Nature conservation Agency, the forestry authorities and the forestry police.

Any third party logs are only accepted by Kronostar after submission of the necessary documentation guaranteeing legal origin. All of Kronostar transport companies and suppliers (about 200) provided felling permits and relevant certificates that are kept in the company offices.

In addition to harvesting wood, Kronostar is also using wood off cuts and sawmill wastes for both panel furnish and fuel for the biomass thermal system.

Stakeholder Engagement

While there is no specific community development plan per se, the company carries out several actions every year on an ad hoc basis, following requests from the community, for example providing funds to the local schools and clinics, providing computers to schools.

As one of the biggest enterprise in the Scharja aera, Kronostar, in the period 2003 – 2008 spent more than 30 Mio. Rubel for charity.

**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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