While all Performance Standards are applicable to this investment, IFC’s review indicates that the investment has or will have impacts that 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. The findings of IFC’s site inspection confirmed that the impacts related to Land Acquisition and Involuntary Resettlement (PS5), Biodiversity Conservation and Natural Resources Management (PS6) Indigenous Peoples (PS7) or Cultural Heritage (PS8) are not significant. The increased storage capacity created by the added height of the project’s diversion structure requires the acquisition of approximately 1.5 ha of land along the margins of the existing water impoundment of the Andhi Khola. Because of the steepness of the grade of the majority of this land, it is neither suitable for agriculture or livestock grazing. The land has been acquired from 17 households on a willing buyer, willing seller basis.

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. Based on its review of project information, IFC identified potential environmental, social, health and safety risk in the following areas: environmental impacts of the project during construction and operation, including increased silt load in the Andhi Khola River as a result of construction activities; construction materials stockpiling and disposal of construction wastes, including excavation muck; the influx of construction workers and their impacts on the surrounding communities; worker health and safety in the construction and operation of the project; the acquisition of small amounts of land upstream of the project works; and, the potential disruption of the electricity and irrigation services provided by the project on communities upstream and downstream of the project. The existing Project has been in operation for 17 years and the pattern of Project impacts has been well established. The magnitude, extent and duration of the predicted impacts of the proposed upgrading of the project will not be significant apart from the temporary impact of construction activities. BPC practices responsible environmental, health and safety (EHS) management to minimize potentially adverse social and environmental impacts of its operations. The Company maintains integrated systems to manage EHS performance commensurate with the level of risk associated with their operations. These systems are ISO certified and are consistent with IFC’s EHS General Guidelines.

Information concerning how these potential impacts are addressed by the Group is summarized in the paragraphs that follow. PS 1: Social and Environmental Assessment and Management Systems – IFC’s assessment considered the Company’s management of its environmental, health and safety performance in the establishment and operation of its facilities; compliance with national and local permitting requirements; and the Company’s engagement with local communities regarding environmental, health and safety performance. - Management Systems and Organizational Capacity – BPC is an ISO 9000 and 14001 Certified company with an in-house Environment Unit composed of six specialists that provides social and environmental assessment, monitoring and evaluation services to internal as well as external clients. A four-person Project Environmental Management Unit, supervised by the head of the BPC Environment Unit, will be established at project site to monitor construction activities and the implementation of the project’s Environmental Management Plan. - Social and Environmental Assessment and Management Program – A detailed Environmental Impact Assessment (EIA) was prepared by BPC’s Environmental Unit in accordance with the Environmental Protection Regulation (EPR 1997) in December 2007. The EIA was subsequently updated as an Initial Environmental Examination (IEE) in June 2009 as per the amendment of EPR in February 2009. The IEE was approved by the Ministry of Energy (MoE) in July 1, 2009. The IEE provides a thorough review of the existing environmental and social conditions within the Project area, an identification of potential impacts by their magnitude, extent and duration, and a detailed review of impact mitigation measures to be undertaken by the Project proponent. The IEE also provides a detailed Environmental Management Plan that identifies the organization and staffing of the Project’s Environmental Management Unit (EMU) and the framework for baseline, compliance and impact monitoring and reporting during the construction and operations of the project. The IEE concludes that: there will be negligible adverse impacts resulting from the project; those impacts will be associated with the construction of additional civil works (e.g., barrage height extension, additional desilting basin, improvements to existing fish ladder, additional penstock and expansion of the tailrace). The impoundment of the Andhi Khola River and, more recently, the impoundment of the downstream Kali Gandaki River for hydropower generation, have had long established impacts on fisheries and riverine ecology downstream of the Project’s headworks. As such, the impact of the Project’s operations will also be negligible (although the Project will be required to maintain 10% of the river’s minimum flow downstream of the head-works as per the ‘Hydropower Development Policy 2001 of Government of Nepal’). IFC concurs with these conclusions and considers the Environmental Management Plan to provide adequate controls to manage the impacts identified. Specific management actions highlighted by IFC in an attached Environmental, Health and Safety Action Plan are described in the sections that follow. - Monitoring and Reporting – The Project’s IEE contains a detailed monitoring schedule for: 1) Baseline monitoring to determine impacts on baseline social and environmental conditions; 2) Compliance monitoring that maintains a record of specific environmental quality indicators or pollutants to ensure project compliance with benchmark environmental performance standards; and 3) Impact monitoring that measures specific parameters during construction and operations against baseline to detect impact and trigger mitigation measures. The Project’s EMU will prepare monthly reports for submission to Project Management and to BPC’s in-house Environmental Unit for review. The Company’s Environment Unit will undertake an annual internal audit to examine the actual environmental impacts, accuracy of the predicted impacts of the IEE and effectiveness of impact mitigation and enhancement measures and monitoring protocols. - Community Engagement – The Company convened a public meeting at a school in Galyang Bazaar in July 2006, in accordance with MoEST requirements, to present preliminary findings of the IEE study and to address community concerns related to the project. Project management has regular contact with the surrounding community and BPC will appoint a Public Relations Officer to manage community grievances during the construction period. Copies of the IEE in English, with a Nepali translation of the Executive Summary, are available for public review at the Andhi Khola Project office and at the BPC head office in Kathmandu. PS 2: Labor and Working Conditions. IFC’s review considered BPC’s operations with regard to fair, safe and healthy working conditions in its operations. The Company employs 315 full time staff as of September 2009. In the course of its recent rapid growth, the Company has been building a Human Resources management capacity. Terms of employment, wage and benefit scales, job performance standards and conditions for advancement and the conditions of disciplinary action are detailed in BPC’s Personnel Manual, which is provided to all employees at the time of their induction. BPC’s employment policies and procedures are consistent with the requirements of Nepal’s Labor Act. All employees are free to join an independent employees union, which elects a representative to liaise with the Company’s Employee Relations Officer on employment issues. Grievances may be elevated to Company management by the union representative and, in the case of irreconcilable grievances, the Government Labor Office may be engaged at the request of either the union representative or Company management to mediate. BPC maintains high standards of OHS at its head office and project operations. Safety protocols and training drills are prescribed by the company’s Disaster Management Plan. Each of the Company’s projects maintains an accident reporting system that requires investigation, analysis and corrective action for serious lost-time incidents. The Project’s EMU will ensure contractor compliance with good industry practice occupational health and safety (OHS) standards during the construction period through regular monitoring of worksites and contractor OHS training as required. Provisions for an OHS management plan have been included in the Action Plan attached to this document. PS 3: Pollution Prevention and Abatement. IFC’s review considered the Company’s plans for controlling the impact of the project’s construction on the surrounding natural environment. The most significant impact of the Project’s construction phase will be excavation for additional civil works. An estimated 3,680 m3 of excavation material from the construction of an additional de-silting chamber will be disposed along the banks of the Andhi Khola downstream of the project’s headworks, compacted and protected from erosion and used for the construction of an access road from the village of Lower Galyang to the headworks. The Environmental Management Plan has provisions for the handling and disposal of waste lubricants from construction vehicles and other construction-related solid waste. PS 4: Community Health, Safety and Security. IFC’s review considered the Company’s capacity with regard to the impacts of the construction and operation of its facilities on the health, safety and security of surrounding communities. The most significant impact of the Project on local communities will be the increased flow of construction traffic from the main highway through Galyang Bazaar and the Lower Galyang village to the Project’s headworks. The Company will prepare a traffic management plan to ensure the safety of those residents of Lower Galyang living on the margin of the headworks’ access road. The construction area at the Project’s headworks will be secured with fencing and access will be controlled by unarmed security guards employed by the Company. All other construction activities will be conducted underground at the Project’s powerhouse and tailrace tunnel. The construction labor force is not expected to exceed 250 workers. That labor force is expected to be recruited in large part from surrounding communities. A temporary labor camp will be established near the headworks and occupants will be provided with appropriate accommodations, including water and sanitation facilities. The Company will prepare a plan for the accommodation and management of temporary workers to reduce the potential adverse impacts of an influx of labor on surrounding communities. BPC will put in place appropriate safeguards to protect surrounding communities from hazards related to the handling and use of explosives during construction as well as an early warning system for downstream inhabitants to signal unplanned releases from the diversion weir at the Project’s headworks. Expansion of the headworks structures will result in the interruption of power generation by the Andhi Khola plant that is wheeled to the national grid as well as to a more localized rural electrification program. BPC will purchase electricity from the National Electricity Authority for wheeling through its distribution network to ensure an uninterrupted supply of electricity during the 9 months shutdown of the powerhouse out of 22 months of total construction period for upgrading and testing. Similarly, the expansion of the headworks structures will result in the interruption of water supply to the Project-sponsored irrigation program – the Andhi Khola Water Users Association AKWUA– which currently serves a command area of 309 ha farmed by approximately 8,000 households. BPC will construct a temporary pipeline to bypass the headworks and maintain a regular flow of water to the AKWUA program throughout the Project’s construction phase.

Since its commissioning, the Andhi Khola Project has supported community development efforts in rural electrification, irrigated agriculture and agricultural extension, and small enterprise development. Through a partnership with donor and non-governmental organizations, BPC, through the Andhi Khola Electrification Program has provided electricity to 23,743 rural households and enterprises in the Syangja and Palpa districts through low-cost distribution systems managed by electricity User Organizations. BPC is currently implementing an expansion of this program with Norwegian foreign assistance that is targeting a total of 6,000 consumers through the Rural Electrification and Extension Program. Similarly, since its commissioning, the Andhi Khola Project has supported AKWUA and the extension of irrigated farming technical assistance to the inhabitants of the AKWUA command area. The increased availability of water to the irrigation network as a result of the Andhi Khola Project’s expansion will enable AKWUA to expand its command area and service additional farming households. Through these activities, BPC has become a well integrated presence in the local community and an anchor for community development initiatives throughout Syangja District.

Butwal Power Corporation Ganga Devi Marg - 313 Buddha Nagar, Kathmandu Tel: 4781776, 4785295; Fax: 977-1-4784026 Andhi Khola Hydropower Project Office Galyang Bazaar, Jagatradevi VDC Syangja District, Gandaki Zone All inquiries and comments should be directed to: Mr. Ranjan Lohar , CEO Butwal Power Corporation E-mail: info@bpc.com.np