28172 - Frikom

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Environmental & Social Review Summary

Project Number

28172

Company Name

FRIKOM DOO BEOGRAD

Date ESRS Disclosed

May 15, 2009

Country

Serbia

Region

Europe

Last Updated Date

Nov 30, 2016

Environmental Category

B - Limited

Status

Completed

Previous Events

Approved : Jun 26, 2009
Signed : Jun 29, 2009
Invested : Jul 28, 2009

Sector

Other Food

Industry

Agribusiness and Forestry

Department

Gbl Ind, Manufact, Agribus & Services

Project Description

Agrokor is the leading food producer and retailer inCEE region. Agrokor’s Serbian subsidiary, Frikom, which was acquired by Agrokor in 2003 through a privatization program, is engaged in vegetables farming, ice-cream, frozen vegetables and pastry manufacturing, packaging and distribution. In 2008 Frikom acquired Nova Sloga in Trstenik, central Serbia through a privatization deal, for its potential in fruit and vegetables packaging and its mineral water source.

Nova Sloga was established in 1953, changed its ownership structure in 1998 to a Public Enterprise (Srbijasume); and, in 2008 was privatized by Agrokor and is considered to be the most successful privatization in Serbia. Nova Sloga owns exclusive rights to the ground water source of the Veluca aquifer with a high mineral content sold under the brand name Mivela. Nova Sloga’s existing bottling line was relocated to Trstenik from Agrokor’s Kiseljak mineral water plant near Sarajevo.

IFC will finance a corporate investment to Frikom and its subsidiary Nova Sloga. Frikom is contemplating a €40 million project for 2009 that is aimed at the following elements: refinance Frikom’s short term with long term debt; refinance Nova Sloga’s acquisition cost to Agrokor; purchase new combines (harvesters) for vegetable production; purchase a new frozen vegetables production line and ice-cream machine, and construct and equip new cold storage facilities at Frikom. The project will include Nova Sloga’s new cold storage; a new packaging line; water bottling plant and equipment including PET bottle manufacturing and glass/PET filling lines; and refrigeration and transportation.

Overview of IFC's Scope of Review

From 27-29 April 2009 IFC environmental and social staff visited Frikom and Nova Sloga operations in Serbia. In addition staff reviewed extensive information and data requested from the client to facilitate a better understanding of client operations and compliance with the performance standards.

E & S Project Categorization and Applicable Standard

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; and
PS6 – Biodiversity Conservation and Sustainable Natural Resources Management;

IFC’s environmental due diligence included review of a detailed environmental and social questionnaire completed by the client and a physical visit to Frikom and Nova Sloga operating facilities. The data provided and physical visits confirmed that, apart from upgrading wastewater treatment systems, there are unlikely to be significant issues associated with Frikom''s frozen food, pastry, ice cream and bottled mineral water plants. Previous experience with Agrokor in acquisitions and privatizations demonstrated that the Agrokor Group has a positive and proactive approach to sustainable development, environmental protection, and health and safety, and to food safety and hygiene. Frikom’s production facilities in Serbia are ISO 9001(Quality Management) and Hazard Analysis of Critical Control Points (Food Safety) certified to Codex Alimentarius. Further strengthening of food safety in field and processing activities, occupational health and safety and resolution of incomplete wastewater treatment will be incorporated into the environmental action plan (EAP). Upon institutionalization of the indicated good international industry practices, the project will be in compliance with applicable IFC performance standards and applicable sections of EHS guidelines. Accordingly a B categorization is fully justified.

Environmental and Social Mitigation Measures

Social and Environmental Assessment and Management Systems – Frikom commenced implementation of quality and food safety management systems in 2006. Hazard Analysis and Critical Control Point (HACCP) food safety certifications are in place for ice, ice cream, frozen vegetables and frozen pastry lines. ISO 9001-2000 Quality Management system is in place as well for all production lines including primary production. The most recent certificate was granted in December 2008. Monitoring audits for both HACCP and ISO 9001:2000 are scheduled for September 2009. Frikom will pursue certification to ISO 14001 (environmental management) and OHSAS 18001 (occupational health and safety). Considering reported performance of the existing occupational safety management function, OHSAS certification will be an important addition to Frikom’s operations.

Disparate staff responsible for implementing environmental and social affairs staff is distributed among several departments. Occupational health and safety currently is the responsibility of the human resources, legal and general affairs department; environmental affairs are under the Quality Assurance Unit; and water supply and wastewater treatment is managed as a small, separate unit. In accordance with the attached Environmental Action Plan (EAP) Frikom will reorganize these functions to achieve comprehensive and efficient internal services.

Nova Sloga’s current bottling operation does not have ISO or HACCP certification. There is one individual in charge of production and no staff with currently assigned responsibility for occupational safety and health or environmental affairs. Quality control and microbiological monitoring are performed by the regional Institution for Public Health in Krusevac. In accordance with the attached EAP, Nova Sloga will be required to implement and certify food safety and quality programs in the near term. Nova Sloga has not yet performed an environmental assessment for the proposed expansion project; however, the company will conduct the EA as part of preparation of other documentation required for the expansion. And, in accordance with local law, the EA will be disclosed publicly and arrangements will be made for public review and comment on the proposed project.

Nova Sloga’s bottling plant expansion will involve construction work for new buildings, internal and external roads, and supplemental production wells at locations in the vicinity of the existing bottling plant. Accordingly, Nova Sloga will incorporate precautionary requirements into construction contracts addressing mandatory compliance with occupational health and safety requirements of Serbian authorities and IFC General EHS Guidelines, extend human resources polices to contractors and incorporate additional specifications needed to the extent feasible to prevent negative impacts to workers and unplanned events such as chemical or hydrocarbons spills and/or leakage during construction.

Neither Frikom nor Nova Sloga has a Stakeholder Engagement program or a public Grievance Mechanism in place. Consistent with the EAP both will be prepared and disseminated to the public for Frikom and Nova Sloga operations to facilitate receipt and management of external questions, concerns and expressions of interest in the company and its operations.

Labor and Working Conditions – Frikom has a human resources policy that is responsive to the transparency requirements in this performance standard. There are three unions in Frikom and an employee grievance mechanism in place in accordance with the collective agreement. Each worker has a negotiated contract based on the collective agreement. Frikom developed a plan in the event of future retrenchments that includes a temporary paid furlough (2 years) during which 65% of the monthly salary and other benefits are paid to affected workers. Frikom’s wage scale is higher than local and regional averages. Frikom and Nova Sloga will ensure that contracted entities and contractors operations are in accordance with its defined labor practices and transparency.

An occupational health and safety and life and fire safety risk assessment was conducted by regional government authorities as part of the process to obtain working permits for the factory. Required permits are in place; and without these an operational license cannot be approved by the relevant Ministry. Frikom conducts regular training of the workforce and provides orientation for new employees and operating equipment, PPE is provided for workers involved in cold storage operations and other areas as needed. Reported lost time accidents and lost work days for employees and contractors, however, are high (3 man-years lost time in the last 12 months). Frikom and Nova Sloga will internalize occupational health and safety and strengthen its accident prevention programs in accordance with the attached EAP.

Nova Sloga does not have a formal human resources policy or employee grievance mechanism. Frikom will modify its existing human resources policies and retrenchment mechanism and apply these programs to Nova Sloga operations. The company does have an open door policy in case of complaints. With the proposed expansion when vegetable cold storage is completed, Nova Sloga expects to hire an additional 100 employees. Employees are organized in one Union. They have a signed collective bargaining agreement. Each employee has a negotiated a contract based on the collective agreement. Workers wages are slightly above regional averages.

An occupational health and safety (OHS) risk assessment is being prepared for each Nova Sloga workplace by an authorized agency. New hires are required to attend an induction course. Originally, an OHS risk assessment was carried out as part of the operational permit for the factory, which is the same requirement for Frikom. Without the risk assessments and mitigation measures in place, operational license are not approved by relevant Ministry. Nova Sloga does not currently collect occupational health and accident statics. Frikom and Nova Sloga will institutionalize and internalize occupational health and safety into its operations and generally strengthen all measures needed to reduce accidents and lost time in accordance with the EAP.

In the future Nova Sloga will work with ~100 cooperants or independent farming operations that will sell produce to the company. At the present time, Nova Sloga does not have the internal capacity to address quality issues, pest management, and other issues related to the supply chain of fresh fruits and vegetables. Frikom and Nova Sloga will strengthen its quality assurance and food safety functions and institutionalize integrated pest management in its supply chain in accordance with the EAP.

Frikom and Nova Sloga will improve occupational health and safety requirements for personnel working for construction (e.g. new cold storage at Frikom and Nova Sloga) and other services contractors and contracted personnel to ensure safe and health working conditions and transparency and compliance with national labor law. Services and construction contracts will be modified to ensure that each contractor provides an occupational safety and health management program equivalent to IFC General EHS Guideline requirements and is responsive to Frikom’s Human Resources policies.

Pollution Prevention and Abatement – Frikom is currently installing a new vegetable processing line that will be completed by the end of the second quarter of this year. The equipment is from Western Europe and incorporates dry peeling with water recycling that will reduce production of industrial wastewater. Frikom’s principal issue resulting from operations is industrial wastewater. The existing system provides primary treatment including oil skimmers, sedimentation and effluent mixing to reduce the strength of wastewater discharged to the industrial sewer. Frikom has a permit to discharge wastewater from its primary treatment into an industrial sewer and then into the Danube. In the vicinity of Frikom there are ~4 other privately owned food processing plants or the privatized elements of the former state-owned PKB combinat : Implek Dairy; Imes Slaughterhouse; Energotehnika; and, other elements of the PKB (vacant land, grain production, storage silos, processing, etc.). Energotehnika provides periodic wastewater and sludge removal from individual septic tanks for households in the region. Collected materials are discharged to the PKB combinat main sewer and then untreated wastewater from these operations is discharged to the Danube. Neither PKB nor the other operations have discharge permits.

In April 2009 untreated wastewater from this industrial sewer was implicated for pollution and destruction of ~1 metric ton of fish in the Danube. Local authorities audited the entities discharging to the sewer and ordered them (with the exception of Frikom) to obtain discharge permits. Frikom was mentioned in the press as the only company that has permit for discharge. Frikom and Nova Sloga will upgrade industrial waste water treatment to ensure that treated wastewater discharged to sewers and to the Danube is in compliance with discharge limits in Serbian regulations and the IFC General EHS Guideline in accordance with the attached EAP.

Several other hazardous materials management issues will be resolved in accordance with the attached EAP. These include containment for used hydrocarbons storage; confirmation of the integrity and monitoring of a 50m3 underground diesel storage tank, and management of ammonia in accordance with good international industry practices (e.g. International Institute of Ammonia Refrigeration Process Safety Management Guidelines for Ammonia Refrigeration) ; and capture , replacement, and destruction of all R-502, R-22 and other refrigerants subject to phase out and bans in fixed facilities and in the transport fleet in accordance with best international industry practice (e.g. 404A).

Frikom’s vegetable production area of ~2300 ha for grains, peas, etc is bolstered by four (4) cooperants or suppliers (PKB, Dijamant, Titan, and Agros) that provide ~50% of its total grain and vegetable volume packaged and sold each year . Frikom contracts these entities and in these contracts defines the relationship and the assistance to be provided as well as other issues including pest control and use of pesticides, harvesting, quality control, and other considerations. Frikom and Nova Sloga will implement integrated pest management programs for owned agricultural operations as well as for cooperants. These programs, in accordance with the attached EAP, will adhere to the requirements of IFC performance standards and sector specific EHS guidelines for scientific analysis of pest problems of economic significance, maximization of non-chemical controls, and highly selective and controlled use of any chemical control methods deemed necessary.

Community Health Safety and Security – Frikom is situated in the industrial zone described above. There are no immediate households or neighbors in the vicinity of Frikom operations. Security operations and fire prevention and management are operated in compliance with local legal requirements. Frikom employs private security contractors; the scope of work and services proved are defined in a contract. Frikom’s security is armed, provides entrance control in factory building as well as escort for money transfers. In accordance with the EAP, Frikom will ensure that security contracts for Frikom and for Nova Sloga are guided by principles of proportionality, good international industry practice in terms of hiring, rules of conduct, training, equipping and monitoring of such personnel, and applicable law. Frikom will also conduct periodic and pre-contract investigations to ensure that selected contractors are not implicate in past abuses.

Nova Sloga operations are adjacent to a newly acquired 1.5 ha parcel that will be used for expansion. The public road is used by local communities. Although the road is outside of the company’s premises Nova Sloga will ensure that operations guidance in procedures manuals incorporate measures to prevent traffic incidents and that any materials spills (e.g. hydrocarbons) are promptly collected and affected soils are removed for appropriate disposal.

Land Acquisition and Involuntary Resettlement - Nova Sloga recently signed contract for purchase of a 1.5 ha parcel for expansion. The purchase of this expansion land was in a willing buyer/seller transaction between Nova Sloga and the land owner; there were no physical or economic displacements. No other land acquisitions by Nova Sloga or Frikom are anticipated.

Biodiversity Conservation and Sustainable Natural Resources Management – Frikom is situated in a large industrial polygon surrounded by a number of industrial entities. All of the land in the polygon has been disturbed for some time. The company extracts local ground water for operations from six ground water wells. Water from wells is transported through a pipeline to pretreatment then to a storage pond thence to rapid sand filters to remove Fe, Mn, and NH3 from water. Treated water is disinfected with chlorine and stored in a potable water tank to be used in manufacturing. Treated water is used for potable purposes including drinking, raw material for beverages, vegetable processing line, hygiene, steam production, cooling unite, sanitary use, etc. Drinking and sanitary use in 2008 included: 50 m3/day ; Cooling unit use: 120 m3/day; Steam production: 250 m3/day; Other: from 280 m3/day to 3500. This large range results from the seasonality of work performed by Frikom. In the winter time the usage of water is on the lower end of the range, while the usage of up to 3, 500 m3 per day is observed in the summer months. Water is used in ice cream production (it makes up a significant part of the final product) and in the processing of vegetables. In the peak season Frikom operates on a 24/7 schedule to process all harvested vegetables (in 2008 processed quantity amounted to 7.600 tons of various vegetables). The processing includes vegetable washing, cleaning, and blanching and water is used in all these stages. Production of ice cream and vegetables at maximum capacity results in significantly higher water consumption during a few peak months. The investment in a new production line will diminish the water usage per product. In 2009 11, 155 metric tons of vegetables will be processed using the same amount of water as in 2008. This represents 17-20% lower consumption of water per product than in 2008 Frikom operations are the exclusive user of this resource. In accordance with the attached EAP, Frikom will undertake studies of the ground water to demonstrate long-term sustainability of the resource and document that peak rate of usage is sustainable and there are no negative impacts on regional industrial or municipal water users.

In 2008 Nova Sloga commissioned a hydrogeological evaluation of the existing ground water resource by the Mining–Geological Faculty in Belgrade. The study proved that the reserves of ground water allow for the proposed extraction increase from 9 million liters/year to 65 million liters/year while maintaining quality and its unique taste. Using the final report, Nova Sloga submitted a request to Ministry of Environment (MOE) for the proposed extraction increase. The MOE approved the request and Nova Sloga will receive the authorization permit in the near term. Nova Sloga will provide the MOE permit to IFC in accordance with the attached EAP.

Stakeholder Engagement

IFC promotes good relations with host communities in areas of influence of client projects. To facilitate and consolidate relations with host communities in areas of influence, the company will prepare and fully institutionalize management system procedure(s) to achieve interaction and open communication with host communities and to attend to any grievance related to the Frikom and Nova Sloga operations including agriculture, processing and transport facilities. This mechanism will allow Frikom and Nova Sloga to receive and consider opinions about company operations and respond to them. The process will be fully communicated to employees through procedure orientation and periodic training and individuals will be clearly assigned responsibility for implementation. The process and procedure will be understandable, transparent, culturally appropriate and easily accessible for community members at no cost and without fear of reprisals. This mechanism will not interfere with or prevent access to other administrative or judicial recourses. Frikom and Nova Sloga will inform local communities about the mechanism through its existing channels of community engagement and disclosure of project related documents.

Regarding the availability of the ESRS for public review, the document will be available starting May 18, 2009 at the following places:

Municipality Palilula
Ul. Takovska 12
11000 Beograd

Ministry of Agriculture
Ulica Nemanjina 22-26
11000 Beograd

Members of the public can view the Environmental & Social Review Summary report until June 18, 2009.

Questions may be directed to Frikom, Zrenjaninski put bb, 11213 Padinska Skela, Beograd, telefon 011 2074- 125, faks 011 2074 118, attn : Mr. Dane Mincic, dane.mincic@frikom.rs .

Client Documentation

File Name	Actions
Microsoft Word - Frikom EAP Final 16 June 2009..pdf

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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.

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