While all Performance Standards are applicable to this investment, IFC’s environmental and social due diligence indicates that the investment will have impacts which must be managed in a manner consistent with the following Performance Standards: PS1: Social and Environmental Assessment and Management Systems PS2: Labor and Working Conditions PS3: Pollution Prevention and Abatement PS4: Community Health, Safety and Security PS5: Land Acquisition and Involuntary Resettlement There are no endangered species or natural protected areas at or near the Engro Chemical site. Indigenous Peoples were not identified in the project area. Cultural Heritage was not identified in the project area.

This is a Category B project according to IFC’s Environmental and Social Review procedures because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Engro was established in a mixed industrial and farming area in 1960s. It is surrounded by other industries and farmland. The nearest community is approximately 1.5 km distant. The expansion project is located inside the existing site. The normal operation has limited impact to the environment and nearby communities. Engro has established programs to manage the operation safely, and it has efficient procedures for emergency response. Mitigation measures for the potential environmental and social impacts have been identified and are incorporated into an attached Environmental and Social Action Plan (ESAP).

The key environmental and social issues for this project include the following:

- Corporate EHS management system
- Emissions and effluents
- Process safety
- Hazardous material and emergency response
- Sanitary solid waste disposal

Engro Chemical has presented plans to address these impacts to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with the environmental and social requirements - the host country laws and regulations and the IFC Environment and Social Performance Standards and the World Bank Group (WBG) environmental, health and safety guidelines. The information about how these potential impacts will be addressed by Engro Chemical is summarized in the paragraphs that follow. Further information is provided in the attached ESAP, which is agreed upon by IFC and Engro Chemicals and will address the compliance gaps with IFC’s requirements.

1. Social and Environmental Assessment and Management Systems Land and natural environment: Engro Chemical’s 600 ha site is located in a mixed industrial and farming area in Daharki, District Ghotki, Pakistan. The Mari natural gas field is adjacent to Engro’s site. There are a few villages in the area, with the nearest one approximately 1.5 km from Engro’s site. The urea expansion project is totally within the existing site. There are no endangered species or natural protected areas near the Engro Chemical site. Environmental and Social Assessment: Engro Chemical hired external experts to conduct environmental impact assessments (EIA) for the urea expansion project according to Pakistan’s regulatory requirements. In accordance with the ESAP, Engro Chemical will contract external experts to prepare a supplemental cumulative impact assessment section to evaluate the overall impacts from both the existing and expansion projects and propose mitigation methods to ensure existing processes, expansion processes, and cumulative impacts can all meet the requirements of IFC Performance Standard and EHS technical guidelines. Environmental, health, and safety (EHS) management and organization: Engro has a corporate wide philosophy and value system for EHS which applies to all subsidiaries, including its chemical, food, polymer, power, etc. The subsidiaries have their own EHS committees where relative importance of different variables may differ. EHS committee of fertilizer company gives higher priority to safety and environment, while EHS committee of food company will accord higher priority to hygiene and food safety. At the corporate level, the executive committee is responsible for Corporate wide overall Objectives & Policy Setting which are approved by the Engro Corporate Board and implemented through each company’s Board. Engro Chemical has ISO 14001, OHSAS 18000, and SA 8000 certificates for its production site in Daharki. At Engro Chemical, the Department of Health, Safety and Environment (HSE) leads all EHS related works, and reports directly to the plant general manager. According to the ESAP, Engro will establish an effective corporate EHS management system for the corporate management to better understand and coordinate the overall EHS performances. Training, monitoring, and reporting: Engro Chemical has an established program to provide necessary training for all its employees in the field of environmental and social performance related to its operations, including onboard qualification training and annual refreshers. The HSE department conducts routine environmental, health and safety monitoring for its operations. Engro Chemical keeps its environmental and social performance records through its internal reporting structure. Engro discloses general EHS performance data in the annual corporate responsibility report. Engro Chemical also starts gradual disclosure of selected EHS information to the nearby villages thorough its community engagement programs.

2. Labor and Working Conditions Human Resources Policy and Management: Engro has a corporate guideline and general rules for human resources (HR). There are detailed HR policies at Engro Chemical that specify the terms of employment and working conditions. These include procedures for hiring and recruiting, probation, training, performance review, promotion, insurance, salary and compensation, resignation, lay-off and firing, leave and vacation, and retiring. Engro Chemical employees work 42 hours per week. Employees only work overtime during emergencies, and the employees get double payment for the overtime. The government’s inspectors check its labor performance every year. An external labor expert is also contracted to conduct SA 8000 related audits. There has been no strike at Engro Chemical in recent years. The grievance mechanism is managed by the union, and there are formal procedures as grievance mechanism for employees to report their personal concerns. Worker’s Organization: There is one independent labor union at Engro Chemical, which represents all non-managerial employees. The union is very active on various labor issues and also works as a grievance mechanism. The negotiated agreements between Engro Chemical management and the union are formally recorded in the Memorandum of Settlement between Engro Chemical and Employee Union, which include labor rights, compensation, work hours, leave, grievance, discipline, and all other labor issues. Non-Discrimination and Equal Opportunity: The hiring and promotion are exclusively merit-based, with the preference to the local people, especially for the non-management labors. Retrenchment: Retrenchment is not expected for this project. The current construction work for the expansion project requires approximately 3,000 labors with 1,000 from the Lahore area and 2,000 locals. The company will hire approximately 90 permanent new employees for the expansion project. As stated in the ESAP, Chemical will give preference to the locals and farmers who may be economically affected by the potential land purchase in the future. Labor Camp: Approximately 1,000 technical staff and skilled laborers are hired by various contractors from the Lahore area to work for on construction of the expansion project. Except for some managers, most of the laborers live in the labor camp inside Engro Chemical property; therefore, interaction with and impact on the local communities is limited. The hygiene and safety conditions at the labor camp are fair. Engro Chemical will ensure that labor camp conditions meet local regulatory requirements and each camp room should provide at least 4 m2/person. Occupational health and safety (OHS): The HSE Department leads OHS work at Engro Chemical. OHS is highly emphasized in the operation. There are effective OHS procedures and adequate personal protection equipment for each position at Engro Chemical, which are implemented strictly during operations. There is routine OHS training including annual refreshers for employees. Safety awareness is among the top concerns for both management and operators. Engro Chemical has a long-term contract with DuPont Safety to audit OHS performance and provide technical assistance. From 2006, DuPont Safety started helping Engro Chemical to manage OHS according to US OHSA standards. There have been no fatal or serious accidents at Engro Chemical in recent years. The OHS management at the expansion construction site is satisfactory. All the contractor employees wear proper personal protection equipment according to their different positions. There is adequate lighting for the night shift. There were no lost-time accidents at the construction site in 2008.

3. Pollution Prevention and Abatement Raw materials and resource consumption: The current major raw materials consumed by Engro Chemical are process water (19,000 t/y), sanitary water (2,700 t/y), and natural gas (2,900,000 m3/y). The process water is from local canals; sanitary water is from onsite deep wells; and the natural gas is supplied by the nearby gas field. There are three gas turbines at Engro Chemical with a total capacity of 39 MW, which supplies all the electricity required onsite. After the expansion, the raw materials consumed will increase to; process water (38,000 t/y), sanitary water (3,800 t/y), and natural gas (5,660,000 m3/y). There will be an additional 25 MW gas turbine in the expansion project. Engro Chemical has on-going energy/water saving programs. Environmental Compliances: Engro Chemical currently generates 2,500 m3/d of process wastewater, which is discharged to the canals after onsite treatment. The sanitary wastewater is treated at the septic tanks and maturation ponds before discharged to the canals. After the expansion, the sanitary wastewater will also be treated at an effluent treatment unit before discharge. All the liquid effluents and air emissions meet local regulatory requirement. In order to meet all IFC requirements, Engro Chemical will start monitoring ambient air quality and noise level, and monitoring all the effluent and emission parameters required by WBG EHS guidelines. Engro Chemical will also evaluate and take appropriate measures to gradually improve efficiencies of wastewater water treatment and air emission control to ensure both existing operations and expansion projects meet all WBG EHS guideline limits. Solid and hazardous wastes: There is no major industrial solid waste generated onsite. The sanitary solid wastes from both plant site and residential colony are primarily separated and incinerated onsite. As required in the ESAP, Engro Chemical will separate the sanitary solid wastes accordingly and send out to qualified solid waste company for recycle and disposal. Various industrial hazardous wastes are sent out to licensed companies for regeneration, recycle, or disposal. Hazardous materials and operation hazard: Engro Chemical has established procedures to manage the transfer, storage, and handling of natural gas and ammonia. The management emphasizes process safety as the most important operational issue. Process safety audits are also conducted by DuPont Safety periodically. Hazard operability (HAZOP) studies for each process is current and updated whenever the process is modified. In accordance with the ESAP, Engro Chemical will install multi ammonia automatic monitoring sensors across the site and integrate ammonia monitoring in the central control system. Fire prevention and emergency response: There is adequate firefighting equipment onsite with proper maintenance. There is a 24-hr onsite clinic for both routine first aid and emergency care. Engro Chemical has its own fire truck and fire fighting brigade onsite around the clock. In case of a serious event, external fire trucks and ambulances from neighboring industries could reach the site in five to ten minutes. Fire prevention and emergency response (ER) are included in new employee training and annual refreshers. Engro Chemical conducts routine drills for fire fighting and potential chemical explosion/releases. As stated in the ESAP, Engro Chemical will attempt to conduct joint fire fighting and ER drills with neighboring industries, with mutual cooperation Greenhouse gases (GHG) and energy efficiency: Engro Chemical currently generates 805,000 ton GHG per year. After the expansion plant is put into full production, Engro Chemical is expected to generate approximately 1.416 million ton GHG per year. Engro Chemical has multiple on-going programs to reduce the energy consumption for the existing ammonia / urea manufacturing plants.

4. Community Health, Safety, and Security Community health, safety, and security: There are two villages and two industrial colonies within two km of Engro Chemical boundary. The nearest village is approximately 1.5 km. The routine operations have limited impacts to the nearby community more than 1 km away. However, in extreme scenarios, such as large scale ammonia leak or fire, there are potentially significant impacts to the communities. Urea is the single product and is transported by trucks to the customers. The conditions of the main road to site are fair and this road does not go through communities. Emergency preparedness and response: Engro Chemical has ER plans available and conducts routine drills for fire fighting and potential chemical explosion/releases. Engro Chemical started community awareness / emergency response (CAER) programs from 2008. Under this program, Engro Chemical trains ER volunteers at each nearby villages. The ER volunteers join the onsite and off-site ER drills. The Engro Chemical public relationship manager also takes the safety manager to the bi-weekly community visits, disclosing operational information and answering safety/ER questions from the communities. The CAER program also provides safety training to the local school students and invite senior students to visit Engro Chemical plant site. Security personnel requirement: Engro Chemical hires an external security company for complex security. All the hiring and weapons are registered in the local public security agency. Besides the formal armed security guards, Engro Chemical also hires approximately 80 temporary watchmen thorough proper contracts. Engro Chemical has established management rules for security guards and use of weapons. There is no complaint of harassment or intimidation from local communities. Due to lack of proper public security enforcement, the local communities feel safe with the security guards around.

5. Land Acquisition and Involuntary Resettlement Engro Chemical plans to purchase 50 ha farmland adjacent to the existing plant site. The purchase will be based on the market price and willing-buyer/willing-seller scheme, and there will be no physical relocation. Engro Chemical is committed to follow IFC Performance Standards in the future land acquisitions and will send a land acquisition plan three months prior to the purchase for IFC review.

Engro has an established a corporate level social development program, investing 1% of before-tax profit for social development programs across the country. In 2008, Engro spent approximately Rs. 40 million (US$510,000) on medical care, education/vocational training, and nature conservation projects at communities near its manufacturing sites and key market regions. At the Engro Chemical site, the community engagement focuses on supporting local public schools and vocational training for young adults. The Engro Chemical public relationship manager visits the nearby villages twice per month and the management hold formal meetings with the village representatives twice a year. The villagers can express their concerns at these formal and non-formal meetings or call the public relationship managers directly. Engro Chemical has held two public hearings during the EIA process for the expansion project. In accordance with ESAP, Engro will hold another formal public consultation prior to the trial production.

Engro Chemical informally discloses some of its operational information at the bi-weekly community meetings between villagers and Engro Chemical public relationship/safety managers. Engro Chemical will disclose the Urdu version of this document at local community center (or local newspaper), located at Daharki, District Ghotki, Pakistan. Please contact the following for inquiries or concerns about the environmental and social impacts of this project. Mr. Rameez Faraz Engro Chemical Pakistan Ltd. Daharki, District Ghotki, Pakistan Phone: 0092 723 641001-10 (3034)