While all Performance Standards (PS) are applicable to this investment, IFC’s review indicates that the investment will have impacts that must be managed in a manner consistent with the following: PS 1: Social and Environmental Assessment and Management Systems, PS 2: Labor and Working Conditions, and PS 4: Community Health, Safety and Security. PS 5: Land Acquisition and Involuntary Resettlement. PS 8: Cultural Heritage. The mitigation of the issues related to the Pollution Prevention and Abatement aspects included in PS3 which are also applicable to Cálidda’s Operations, are described within the environmental assessment and management systems as part of the PS1 section. No Indigenous People’s territories or sensitive natural habitats were identified in the project’s area of influence. Applicability of other Performance Standards will be determined by the Company as part of the project-specific reviews, as discussed below.

The Project is a corporate-level capital investment in an existing gas distribution Company, that will be used to fund the Company's existing business and potential network expansion, including the construction of the first loop of the expansion and upgrades to the main grid that connects the concession area to the City Gate. All these impacts can be mitigated or managed with readily available management practices, and therefore this project was categorized as a B.

The potential environmental, social, and health and safety impacts and risks associated with this Project can be separated in two general categories:
Increment on existing impacts / risks associated with continuity of business/services, which include (i) methane emissions from fugitive leaks and venting activities from regular operation and maintenance, (ii) noise, vibration, dust, increased erosion, and other construction and maintenance related impacts from earthworks and excavations, (iii) solid waste and hazardous waste generation, (iv) any potential risk to community health, safety, and security associated to the exposure of communities to hazards from gas leaks and/or explosions, and (v) impact on natural habitats during construction of gas distribution systems in newly developed rural or peri-urban areas, if any.
Impacts and risks associated with the construction of the first loop of the expansion and upgrades to the main grid that connects the Distribution Network (from Lurín to Ventanilla) to the City Gate. These impacts and risks will greatly depend on the final routing of the loop, which at the time of the due diligence site visit had not been finalized. In addition to the impacts outlined above for service continuity, other impacts could include: (i) ROW land easement acquisition, (ii) impacts on natural habitats, including river-crossings, and (iii) impacts on archeological sites.

PS1.- Social and Environmental Assessment and Management Systems:
Cálidda has developed and bases its environmental management in two different Environmental Impact Assessments (EIAs), and modifications and amendments thereof. The first one, the Estudio de Impacto Ambiental de la Distribución de Gas Natural por red de Ductos de Lima y Callao (December 2001) is for the Main Grid from the Lurin City Gate to Ventanilla. The second, the Estudio de Impacto Ambiental de Construcción de las Redes Secundarias de las “Otras Redes” de Distribución en Lima y Callao (March 2004) is for the secondary network, and includes generic environmental and social management plans, with the procedures to identify and assess potential environmental and social potential risks and impacts (comprehensive checklists), and the standard procedures to manage the different impacts and risks.

On April 3rd 2009, Cálidda formally requested to the environmental authority Dirección General de Asuntos Ambientales Energéticos (DGAAE) of the Ministry of Energy, to amend the latter EIA to include the construction of the new loop of the primary network, arguing not only that the area of the new loop is covered by the existing EIAs, but more importantly that the pipe diameter and maximum operation pressure approved by the Peruvian Government for the new loop are within the operation parameters of the secondary network. Furthermore, the existing generic impacts and risks identification matrixes (checklists) and associated environmental and social management plans for the secondary network are comprehensive enough to appropriately manage the impacts and risks associated with this new construction work. In May 12th, 2009, the DGAAE accepted the Cálidda request and agreed to an update of the environmental and social management plans previously approved for the secondary loop.

Management Program: Cálidda has a well developed Environmental, Social, and Occupational Health and Safety Management System and expects to start ISO 14001 and OHSAS 18001 certification by the middle of 2010. This integrated ESH management approach is documented in great detail in the Environmental Management Manual and the Occupational Health and Safety Manual. These Manuals include Cálidda’s Environmental and Occupational Health and Safety Policies, as well as the general framework for Cálidda’s mechanisms to assess environmental, social, and health and safety impacts and risk of its activities and a description of the applicable plans and procedures to manage such impacts and risks. The Environmental Management Manual includes: (a) organizational structure and responsibilities, (b) mechanisms to identify and document environmental and social aspects, (c) environmental impact minimization and mitigation measures (e.g. waste management, river crossing and conservation of water ways, vegetation cover preservation and restoration, emissions control, spill prevention and response), (d) Environmental Management Plan (PMA), (e) historical and cultural patrimony conservation, (f) community engagement and relations, (g) contingency and emergency preparedness plan, (h) closure and abandonment plan, (i) training, and (j) reporting. Specifically, the PMA is the most comprehensive of these documents and outlines all the environmental and social control and monitoring activities that need to be regularly performed for the primary and the secondary network, including but not limited to (k) quarterly ROW security surveillance and erosion control inspections of the primary network, (l) bi-annual air emission measurement at regulation stations and at the City Gate, and quarterly air quality measure at the City Gate and at Ave Argentina regulation station, (m) quarterly ambient noise measurements at the City Gate perimeter, as well as all of Cálidda’s regulation stations and other facilities, (n) quarterly records of solid and hazardous waste disposal, (o) monthly documentation and reporting of communications sent and received to/from third parties, (p) monthly safety training and capacity development for third parties (e.g. contractors, municipalities, other utilities), (q) monthly community relations activities (e.g. municipalities, neighborhood association and community leaders, potential clients), and (r) monthly gas-safety educational activities with existing and potential residential, commercial, and industrial clients.

The PMA also includes a detail description of all the procedures that must be followed before, during, and after new construction activities, including (r) impacts dimension and assessment checklist, (s) weekly soil monitoring (heavy metals, oil and greases, pH), and (t) river-crossing procedures and water quality measurements (e.g. coliforms, suspended solids, DO, etc). As part of the DGAAE approval of the new loop, Cálidda committed to customize the PMA to the specificities related to these works. A fairly advanced draft of these updated PMA was presented and reviewed by the IFC, and the final version will be presented according to terms of reference previously approved by IFC prior to Board Approval. Cálidda requires all contractors to comply with these EHS policies and procedures.

Pollution Prevention (PS3): Regarding environmental pollution and control associated with Cálidda’s operations and general continuity of service, both the Environmental Management Manual as well as the PMA, include procedures to mitigate and manage all direct emission, discharges, and impacts. Cálidda’s reported environmental emissions/discharge values are in compliance with Peruvian regulation, and in line with industry practices.

GHG: This project will result in an overall improvement of air quality in the Project’s area of influence, and the reduction of the climate impact footprint of Lima and El Callao energy use, as it will use substitutes for more polluting fuel use in industry, businesses, and homes. The gross climate impact footprint of Cálidda was calculated based on the methane emissions as a result of leaks and other inefficiencies / losses (approximately 0.25% of total load), its electricity consumption from the grid, and the gas use of mobile vehicles (e.g. gasoline and diesel). The total green GHG emission for Cálidda in 2008 was 49,123 tCO2-eq. These emissions were distributed between the different components as follows: 48,837 tCO2-eq from fugitive emissions, 278 tCO2-eq from gasoline and diesel use, and 8 tCO2-eq derived from electricity purchased from the grid

Organization: Cálidda has an Environmental, Occupational Health and Safety (EHS) Department, headed by an EHS Chief who manages a group of five people, which directly reports to the Technical Manager and has a dotted report-line to the General Manager. Additionally, all social aspects and community engagement and relations are managed by the Corporate Social Responsibility Department, which works closely with the EHS Department and reports directly to the General Manager. The main responsibilities of these two groups are to: (a) develop, implement, and enforce Cálidda’s EHS and Social corporate policies, plans, and procedures, (b) identify and assess potential environmental, social, and health and safety impacts and risks associated with the EHS Department’s existing activities and proposed projects, (c) assure the presence of programs, procedures, and performance measures to avoid, reduce, mitigate, remediate, and/or compensate all identified impacts and risks, (d) supervise and monitor compliance with Peruvian and lenders EHS and Social requirements and with Cálidda’s HSE and Social programs, (e) establish appropriate corrective actions in case of non-compliances, (f) provide training to all relevant people within the organization with responsibilities for implementing these programs and measures, and (g) report on environmental, social, and health and safety performance to upper management and other relevant stakeholders.

Training: Cálidda takes training of its employees as well as contractors very seriously. As part of the year programming which is an integral part of the PMA, Cálidda has an ambitious training and HSE seminars/presentation timetable for all of its employees. For instance, the 2009 EHS training matrix plans for a total of 19 different types training to be given at least once during the year, including first aid/CPR, fire fighting, emergency response, defensive driving, work permits, solid and hazardous waste handling, work in confined spaces, to name a few. This planned training involves a total of 3,284 hours of courses and 528 hours of safety seminars/presentations, and it is to be given to over 800 participants across the whole organization. The training matrix allows for close monitoring of planned/executed training program, and thus allows for corrective actions during the year if planned goals are not being met.

Reporting: Cálidda generates monthly internal ESH reports for management which include general descriptive information of environmental and social performance, and statistics associated with solid and hazardous waste generated, accidents / incidents per man-work hours, and type of trainings performed during the month. These reports also include information on the result of any emergency drill that may have been performed during that month, as well as the status of compliance (planned/executed) of the actions included in the PMA timetable for that year. Furthermore, these reports have a whole section on the EHS performance of Contractors, with essentially the same format and information noted above for Cálidda. Additionally, Cálidda also prepares tri-monthly EHS reports to the Dirección General de Asuntos Ambientales Energéticos (DGAAE) of the Ministry of Energy, which essentially reports compliance with the approved PMAs.

PS2.- Labor and Working Conditions:
HHRR: Cálidda has a well developed Human Resources (HHRR) Department, staffed with a total of three professionals. This Department has three core documents: the HHRR Policy - Política de Gestión Humana, Work Regulation – Reglamento de Trabajo, and the Code of Conduct, which set the foundations for all of Cálidda’s HHRR actions and activities, including those of contractors. These documents include compliance with Peruvian Labor Laws, non-discriminatory hiring and promotion policies, as well as a formal grievance mechanism. The latter involves a Compliance Officer who oversees compliance with the Reglamento de Trabajo and the Code of Conduct, receives reports of any breaches and/or employees’ complaints, and manages solutions with confidentiality and non-retaliatory practices. All these documents are provided to every employee and are available via Cálidda’s intranet site; also contracts with job description, responsibilities and benefits, etc. are fully disclosed to each employee prior to hiring. Even though there is no evidence of restrictions on employees’ freedom of association, in Cálidda’s HHRR policy there is no specific statement with regard to allowing employees to form unions and bargain collectively, besides the fact that they must comply with Peruvian labor laws which includes the ILO Declaration on Fundamental Principles and Rights at Work. However, Cálidda offers a competitive compensation package that is continuously compared with peers in the country, and there is no reported claim of Cálidda’s employees ever trying to create a union, nor any evidence of the Company ever trying to discourage any such efforts. On the other hand, Cálidda’s principal contractors, Nagasco and S&E, usually hire workers associated to the Construction Workers Union (Sindicato de Empleados de la Construcción Civil) with good results in terms of workers-management relationships.

As a growing company, Cálidda is actually planning to increase 41 headcounts in the next three years. Currently, the Company has a total of 177 direct employees and approximately 1,051 indirect employees via five major service contracts. The average age of Cálidda’s employees is 35 years old, with 2/3 of the workforce being male. This disparity on the gender ratio, does not respond to discriminatory policies or practices, but to the nature of the work and the sector

Occupational Health and Safety: Cálidda has an integrated approach to health and safety, focusing on risk assessment and prevention, industrial, and occupation hygiene, fire protection and control, disaster and emergency prevention control, and physical security. Its Occupational Health and Safety Manual (Manual de Seguridad y Salud Ocupacional) sets the framework by which Cálidda manages occupational, health, and safety aspects of its operations and includes (a) clear identifications of all potential occupational and health and safety hazards associated with Cálidda’s activities, (b) development of procedures to minimize hazards and prevent accidents, incidents, injuries, and/or work-related diseases, (c) reporting and supervision, (d) implementation of corrective measures to avoid recurrence, (e) fire prevention, protection, and control, (f) Contingency Planning and Disaster prevention and response, and (g) training and personal protection equipment (PEP) use. This manual includes all the formats needed to document and report (h) incidents, accidents, and near-misses, (i) professional or occupation injuries, (j) fires, and (k) emergencies / drills. Cálidda’s Occupational Health and Safety Manual is provided to all employees and its compliance is contractually required of all contractors. As of March 2009, Cálidda had only one (1) LTI with seven (7) loss days over 70,800 man hours worked, and 2 LTI with 6 loss days over 458,000 man hours worked for contractors, which is quite low, and comparable to similar industries in this sector in Latina America. As part of the environmental management plan timetable for each year, Cálidda has programmed (l) monthly safety talks in topics such as safety attitude, eye protection, noise protection, respiratory diseases, material safety data sheet (MSDS), waste handling, lower back protection, working in confined spaces, among others, (m) monthly routine and specially programmed safety inspections throughout the network and Cálidda’s facilities, (n) tri-monthly HSE audits for Contractors, and (o) annual occupational health and safety program which includes safety objectives and indicators for the year, such as % reduction of accidents/incidents with/without loss time, reduction of emergency situation, % reduction vehicle incidents and fires, among others.

PS4.-Community Health, Safety and Security:
The key concern related to community health, safety, and security regarding natural gas distribution activities is the exposure of communities to hazards from gas leaks and/or explosions. Accidents and pipeline ruptures can be caused by in-house staff, Cálidda’s contractors, third-party activities (outside contractors, municipal employees, and/or the general public), and natural events. Cálidda applies industry accepted international practices with regards to odorization and to operational safety and has a well developed strategy to assure safety to third parties, and an effective and efficient reaction and response in case of emergencies. In November 2003, Cálidda performed and extensive earthquake vulnerability and risk analysis to its network, and thus constructs all its network taking into consideration the seismic conditions of its service area. In August 15 2006 an earthquake occurred in Lima, but no significant damage was sustained by Cálidda’s network, and service was not interrupted.

There is physical evidence and surface signaling above all of Cálidda’s network, as well as buried warning bands with emergency phone number on top of all of the pipelines. For steel pipelines a physical barrier has been installed every 0.16 miles.

Cálidda has two procedures associated with preventing and responding to health emergencies and community safety: The Injury Prevention Program (DPP - Injury Prevention Program) and the Contingency Plan for Emergencies (PCE - Contingency Plan Emergencies).

The objective of these procedures is to protect in order of priority (a) people, (b) environment, (c) physical property, and (d) Cálidda’s reputation.

Additionally, Cálidda has a SCADA system which is monitored 24/7, and Cálidda designs and builds all of their gas distribution facilities and networks in accordance with ASME and API standards, including flow-base meters, automated gas stopped fittings, and remote measuring system. All main pressure reductions stations that require them are equipped with remote cameras, alarms, and fire detection systems.

The PCE involves coordination with the local police and fire department, and classifies emergencies in five general categories: (a) accidents: which include fire, explosions, gas leaks, major injuries, and fatalities., (b) natural events: which include earthquakes, floods, and landslides, (c) operative: interruption of gas supply, (d) communications: issues with the media, and (e) others: which include vandalism, terrorism, and sabotage. The PCE includes specific procedures, actions, responsibilities, communications, and chain of command associated with each of the emergencies that Cálidda may encounter as identified above. The PCE establishes three levels of actions depending on the severity of the emergency: (i) Level 1, which can be resolved with a technical visit, (ii) Level 2, which is considered a minor emergency, and requires participation of the Manager of Operations, and (ii) Level 3, which is considered a major emergency, and the General Manager gets involved and the Crisis Committee is activated. The PMA programmed for each year includes monthly Level 1 emergency drills for the SCADA, a timetable for monthly Level 2 emergency drills involving the different areas (i.e. transport, regulation station, networks, leaks, etc), and bi-annual Level 3 emergency drills. Similarly there are annual evacuation drills at the headquarter buildings. It is important to note that the PCE includes a Community Education Program (Programa de Educación a la Población) which includes an emergency telephone line (616.7899) and establishes the roadmap and activities to educate the general public in what actions to undertake in cases of emergencies and gas leaks. The company is working to have a new free emergency telephone number which would be easier to remember (114), but the existing emergency telephone line does have direct connection with the central fire department (116). This program also involves the PPD communication strategy.

The PPD is a stand-alone program which main objective is to assure that individuals, construction companies, municipalities, other utilities, or any other third party that may be involved in construction work inside Cálidda’s concession area, are (a) aware of the existence of gas distribution system, (b) understand the risks associated with excavation works near gas lines, and (c) learn the different steps that need to be undertaken before the start of any new construction. Once construction starts, the PDD also provides the steps to follow in case of leaks, ruptures, or damage to the gas lines.

Cálidda has a continuously-staffed field office that is equipped to handle emergency calls, and all working crews are also equipped and trained to react to emergencies and perform any needed emergency repairs.

Since beginning operations, Cálidda reportedly has had a limited number of accidental leaks, all within the parameters of the nature of the gas distribution business and without any harm to local community health and safety. All these accidents have been appropriately reported to the local authorities, emergency procedures have been followed, and corrective and/or compensation measures have been implemented

PS 5: Land Acquisition and Involuntary Resettlement
Even thought the alignment of the proposed loop will follow existing roads or existing rights-of-way (RoW) and it has been designed to minimize impacts, there are some sections that are likely to require limited land/easement acquisitions for the pipeline and above-ground installations in urban and peri-urban areas. No physical displacement is expected. Land easement is likely to be required for a RoW of 12 m wide in a section of approximately 10 kms long running from Cálidda’s City Gate in Lurín to Avenida los Manzanos, where most parcels are located in arid and semi-arid areas, with only few of them currently being used for agriculture. Affected farmers will be allowed to grow farm crops with shallow roots. Additionally, land acquisition will be required for up to 14 above-ground installations (i.e. pressure reduction stations) in urban areas amounting to a total area of 5,500 m2.

Although Cálidda could resort to easement imposition if negotiations fail, it has committed to conduct the process based on negotiated settlements and only use this as a last resort. In order to manage land/easement acquisition in accordance with local regulations, IFC’s PS5, and international best practices, as a condition of IFC’s investment, Cálidda will develop a Land Acquisition and Resettlement Framework aimed at ensuring that all impacts are compensated and that any affected livelihoods are duly restored. This Plan may be included as a reference to the updated PMAs, and will include specific measures related to: detailed identification of impacts and affected properties/families, asset valuation methodology, compensation framework, community engagement activities negotiation procedures, grievance redress mechanism, and monitoring and evaluation arrangements, among other components.

PS 8: Cultural Heritage
As mentioned above, for the most part, the pipeline will run along existing roads and its alignment has been designed to avoid any known archeological sites and minimize potential impacts on physical cultural heritage. Cálidda has conducted some micro-reroutings in the alignment to ensure that a safe distance is kept from some of these sites. Cálidda commissioned a team of archeologists to assess potential risks on physical cultural heritage and define a “chance find procedure” and “rescue plan” based on Peruvian requirements and IFC’s PS8 that is part of the updated PMAs and will be implemented during the construction stage. As of September 2009, the archeologists had identified and helped to avoid 38 sites of archeological interest. The local team of archeologists will supervise construction activities constantly and train both Cálidda’s and Constractor’s staff in the application of the “chance find procedure” which has proven effective during the construction of the existing pipeline and associated expansions.

Cálidda has a Corporate Social Responsibility (CSR) Department which has the main objective of identifying, understanding, and managing the social aspects of Cálidda’s operations. This Department is staffed with a total of four full-time professionals and seven contracted community liaison officers. Since natural gas service through pipelines is quite new in Peru, their principal mandate is to engage and educate the population and local authorities on the benefits, risks, and applications of natural gas, as well as the advantages, safety, and responsible use of this source of energy. The CSR department, through its Community Relations Team (CRT), holds meetings with municipal authorities and the general public and provides educational brochures. Also, for the general public, Cálidda has developed a fictitious character, Ingeniero Sánchez, which appears in all of its educational printed materials and speaks in radio educational spots that clarify common doubts and fears about natural gas service. The Environmental Management Manual as well as the draft updated PMAs for the new loop, describes a Community Relations and Engagement Plan (Relaciones Comunitarias), which has the objective to identify, understand, and manage the social aspects of Cálidda’s operations, with the main goals of minimizing negative impacts and maximizing opportunities. To meet these goals Cálidda has a program and an annual timetable for the general public’s education on safe use of natural gas, which provides training on how to recognize emergency situations and assures that clients and the general public know who to call, and understand immediate emergency response actions to safeguard their lives and their property. The timetable includes monthly communication with Municipal authorities, monthly communication with neighboring community leaders, monthly visits to potential new clients, monthly informational / promotional presentations/campaigns with potential clients, and monthly training and capacity building meetings on safe use of natural gas, given to industrial, commercial, and residential clients. Another important component of Cálidda’s social strategy is the community engagement applied at all the construction sites where they are permanently in communication with the Municipality and the community before, during, and after any construction works and/or in case of an emergency. During construction, Cálidda´s Community Relations strategy involves continuous information between neighbors, clients, and contractors’ personnel throughout the execution of the civil works. The CRT is responsible for preparing a social baseline report before the beginning of any construction work, and for identifying community leaders and social activities within the neighborhood to try to build a strong positive relationship with affected communities. In cases of emergency, the CRT also handles interaction with the affected population and the media. Furthermore, Cálidda also implements Social Investment projects for the communities in which it operates. These projects are executed jointly with the Municipalities in the context of social responsibility agreements, and include support for community needs mostly in education, sports and/or infrastructure. Cálidda believes that its employees should have the chance to participate in social development activities promoted by the company, and therefore it encourages the voluntary participation of its employees, which also helps the integration and the alignment of its personnel with the company values.

Cálidda – Gas Natural del Perú Address: Av. Primavera 1878 – Surco, Lima 33. Peru. Contacts: David Porles .- Jefe de HSE / Tel 0051 1 6117665 david.porles@calidda.com.pe Gisella Benavente.- Gerente de Responsabilidad Social / Tel 00 51 1 6117530 gisella.benavente@calidda.com.pe Andrea Mejia ..- Jefe de Relaciones Comunitarias / Tel 00 51 1 6117534 andrea.mejia@calidda.com.pe Amadeo Arrarte .- Jefe de Asuntos Regulatorios / Tel 00 51 1 6117522 amadeo.arrarte@calidda.com.pe Website: www.calidda.com.pe