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 - PS6: Biodiversity Conservation and Sustainable Natural Resource Management Due to all the sites being in developed industrial areas with no planned land acquisition, no impacts were identified in relation to Land Acquisition and Involuntary Resettlement (PS5), Indigenous Peoples (PS7), or Cultural Heritage (PS8).

The proposed project is to invest in already existing cement manufacturing plants, which either already are in compliance with IFC's environmental and social requirements or will be upgraded to comply with these requirements as part of the project. The overall effect of the investment will therefore be improved environmental performance resulting in a consistent compliance with both national and IFC requirements. With no indication of impacts related to Performance Standards 5, 7 and 8, and only readily mitigated environmental issues under Performance Standards 1 through 4 and 6, the project is being processed as a Category B project.

The project Sponsor has presented plans to ensure that the proposed project will, upon implementation of the specific agreed measures, comply with host country environmental and social requirements as well as IFC’s Environmental and Social Performance Standards and industry specific environmental guidelines. The information about how these potential impacts are being/will be addressed by the project is summarized in the paragraphs that follow. PS1: Social and Environmental Assessment and Management Systems: The Bazian Cement plant, which is the only recently constructed plant among the three operations to be covered in this investment, was developed after a full Environmental and Social Impact Assessment was prepared. No historical data on the evaluations ahead of constructing the plants in Tasluja and Karbala are available. When the Tasluja Cement plant operation was leased, a reconstruction plan was prepared and implemented, bringing the plant in compliance with national and IFC guidelines. The Karbala Cement lease agreement will include an initial two months technical due diligence and planning phase, to be followed by an up to 30 months implementation phase. The technical due diligence phase will result in a plan for bringing the operation into compliance with both national and IFC requirements at the end of the 30-month period. Lafarge, which is a member of the World Business Council for Sustainable Development (WBCSD), the Cement Sustainability Initiative (CSI), and the Global Reporting Initiative (GRI) has a strong commitment to sustainable management in accordance with corporate policies. As a result the jointly managed Bazian and Tasluja operations have developed environmental, H&S, and social management principles in accordance with ISO 14,001 and OHSAS 18,001 principles, but not certified as Lafarge's corporate policy does not require the certification. The systems ensure a consistent flow of performance data to the local management team and in turn to the regional operations center in Cairo. The CTC (Cairo Technical Center) is responsible for overseeing all operations in the Middle East and Africa and for compiling information for the global Lafarge management team. At the Bazian/Tasluja plant management team there is an Environmental Manager, a Health & Safety Manager, and these both get support from the Laboratory Manager in ensuring the necessary data can be collected and evaluated against the commitments in the environmental and health & safety policies. A similar parallel system will be established in Karbala once its operation is taken over. PS2: Labor and Working Conditions: The company follows the Lafarge Group's principles for Human Resource (HR) management, including the development of HR policies requiring full compliance with all ILO core labor standards. In this respect Lafarge's global policies promotes dialogue with employee representatives and in 2005, the Group signed a social responsibility agreement with 3 international trade unions, according to which the ambition is to see the fundamental social rights defined by the conventions of the International Labor Organization (ILO) respected throughout the world. The practical situation around HR management of the operations in Iraq is slightly complicated by the Bazian Cement plant being a private enterprise with individual employment contracts that Lafarge can influence according to the above principles, while the Tasluja Cement plant is a leased government enterprise with all employees still being government employees covered under government employee contract conditions and only managed on a daily basis by the project company. The Bazian Cement plant further has expatriate workers (mainly Egyptian), who according to the original plans will be phased out as the local employees acquire the needed skills to take over the duties of the expatriates. Plant has a very stable workforce with a low (<8% p.a.) turnover. The employees of the Bazian Cement plant have the right to form unions, and one has been created last year. At Bazian Cement plant all employees have individual contracts, are hired based on skills under a non discriminatory policy, and a performance reviews process based on professional merits is under implementation. The Tasluja Cement plant, being a government enterprise has more employees than similar operations elsewhere. The government employee contracts do not however allow for staff reductions, unless specific staff members decide to leave voluntarily. The Karbala Cement plant staff has similar strong governmental employment guarantees as the Tasluja Cement plant staff. When Lafarge took over the operations from OCI, the accident frequencies were high with one fatality and 13 Lost Day Accident (LDA) at the Bazian Cement plant in 2008. By focusing on improving the Health and Safety (H&S) performance in accordance with the Lafarge principles on dedicated attention, these frequencies have been substantially improved and the Bazian performance was 0.85 LDA/MMH in 2009 (equivalent to 3 LDA, or better than a factor of four improvement over the previous year). The H&S performance has thereby reached normal levels and the operational team keeps focusing on further improving this performance parameter. The H&S performance improvements have been achieved by a combination of several initiatives including 1) mandatory safety training for all employees, 2) mandatory safety training for all contractor employees on site, 3) safety introduction for any visitor, and 4) medical checks. Similar H&S management and training systems are implemented at the Tasluja Cement plant, by the joint Bazian / Tasluja operational management, and will be introduced at the Karbala Cement plant once it is taken under management control. PS3: Pollution Prevention and Abatement: The Bazian Cement plant was constructed based on modern performance criteria as defined in the 2005 ESIA study and the IFC guidelines. The cement technology used was a state-of-the-art, low energy dry process with pre-calciners and fired by heavy fuel oil. By the end of 2009 the consumption figures for the Bazian plant had reached 3,202 kJ/kg clinker, which is in line with IPPC-defined BAT, and 99 kWh/tons cement, based on a 2.2 mtpa cement capacity. The plant also has its own HFO-fired electrical power generation capacity, initially planned for 40 MW but at the end installed 72 MW to allow for more backup capacity. The cement kiln is equipped with continuous emission monitoring including particulate, NOx, and SOx. The actual emissions have been measured to 245-260 mg NOx/Nm3 (guideline limit 600 mg NOx/Nm3), sulfur dioxide 70-75 mg SO2/Nm3 (guideline limit 400 mg SO2/Nm3) and particulate emissions 33-40 mg dust/Nm3 (2005 guideline limits was 50 mg dust/Nm3. Today the guidelines are diversified to allow for 30 mg dust/Nm3 for new kiln systems, 100 mg dust/Nm3 for existing kiln systems, and 50 mg dust/Nm3 for all other point sources). The dust is limited by the use of covered conveyor belts and bag filters at transfer points. At the cement plant a combination of electrostatic and bag filters are used. More details for the Bazian Cement plant can be found in the attached original ESIA. Since the construction of the Bazian Cement plant a number of developments have occurred. This includes a change in the market situation for oil products, where different qualities are available at different prices, and the stability of the national electricity grid has improved. Today the plant is therefore receiving both low and high sulfur heavy fuel. While the cement kiln can use the high sulfur fuel without critical increase in sulfur dioxide emission, due to the clinkers absorption capacity, the power plant cannot achieve acceptable emissions unless the fuel used has less than 1% sulfur. As a result the fuel for the power plant has to be restricted to the better quality fuel. With the stabilization of the national electricity grid it is now anticipated that the plant within a period of up to two years can be connected to the grid and thereafter only use the generators as backup in case of interruptions. Such a development will eliminate the local generator emissions and the need for two fuel qualities at site. Further it is likely that a natural gas supply can be established for the plant within a two to four years period and this would result in lower CO2 emissions per product unit. Finally the company is planning to introduce blended cement, which will also reduce the CO2 emissions per unit of product. Attached are CO2 emission calculations representing the following operational scenarios: (a) OPC (Ordinary Portland Cement) production and own electricity production, (b) OPC production and connected to the national electrical grid, c) blended cement introduced resulting in 70% clinker on average in cement. Each scenario is further presented with HFO and natural gas as fuel alternatives. These calculations show a variation from the current 698 kg CO2/tons of OPC cement to 563 kg CO2/tons of cement in the case of national grid electricity, natural gas, and blended cement introduced. As part of the overall environmental performance monitoring ambient air has been monitored around the Bazian Cement plant and found acceptable with TSPM (Total Suspended Particulate Matter) of 37µg/m3, SO2 of 19.5µg/m3, and NOx of 10.5µg/m3. Further monitoring of trace emissions that require special laboratory equipment to be imported, like dioxin and mercury is scheduled to be carried out in the autumn of 2010 for both the Bazian and the Tasluja Cement plants. The Tasluja Cement plant, which is leased and has been rehabilitated, was originally built as a dry process, pre-heated dual kiln system in the early 1980s. After the rehabilitation, the plant has been able to achieve energy consumption of the kiln of 3,740 kJ/kg clinker and the following emissions: 240 mg NOx/Nm3, sulfur dioxide 155 mg SO2/Nm3 and particulate emissions of 80-90 mg dust/Nm3. These emissions are all within the IFC guideline limits for existing plants. Based on this the CO2 emissions can be estimated at 802 kg CO2/tons OPC cement with a potential of reducing to 640 kg CO2/tons if blended cement with 70% clinker is introduced. The Karbala Cement plant is very similar to the Tasluja Cement plant, built around the same time by the same supplier. It is therefore anticipated that there will be no problems in obtaining at least the same standard of emission control in Karbala as at the Tasluja Cement plant. The contract obligations for the Karbala plant are anticipated to include an initial two months period within which a thorough technical evaluation shall be prepared including upgrade plans for bringing the operations in line with local environmental requirements within 30 months. The plans will also, according to agreement with IFC, include the needed steps to achieve compliance with IFC's Performance Standards and relevant provisions of the EHS Guidelines. The Bazian and Tasluja Cement plants are dry process plants with low water consumptions and all internally used water being recycled for irrigation purposes. It is anticipated that a similar solution will be found for the Karbala Cement plant rehabilitation. None of the cement plants uses bleed and only a minimum of solid waste, primarily packaging and canteen waste is created and are handled by approved local waste contractors. PS4: Community Health, Safety and Security: The Bazian and Tasluja plants’ locations are both relatively remote with respect to residential areas and at the same time close to the main Sulaymaniyah - Kirkuk road. This means that the transport to and from these plants is directed directly into the main road network minimizing the traffic impact. The two plants are also equipped with air emission controls that limit emissions to within local regulatory and IFC guideline limits, hereby avoiding the risk of health effects. The perimeters around the two operations are secured with the help of a special security provider company, which has received training from the international Control Risk Group. There have been no security incidents around the two plants since the start of their joint operation. The community health, safety and security situation around the Karbala Cement plant, and necessary corrective actions will be evaluated as part of the upgrade plans to be developed within the first three months of the takeover. PS6: Biodiversity Conservation and Sustainable Natural Resource Management All the three cement plants are located with the quarry sites as mainly barren, uncultivated and uninhabited land. To ensure the best and most appropriate utilization of the raw material reserves, all quarries are test drilled and quarry management plans are developed to ensure appropriate material mixing to reduce or eliminate losses. The plant operations also include progressive quarry reclamation plans for gradual implementation during the life of the quarries. Where necessary, overburden from the quarries are removed and stored for later re-application. Since the land is mainly barren, the main goal of the land reclamation plan will be to restore the quarry sites to match the topography of the surrounding landscape.

The Bazian Cement plant has been the cornerstone of Lafarge’s investment in Iraq. Since the inception of the Bazian Cement plant project, the project owners have proactively pursued public disclosure of the ESIA through convening of public meetings to inform the public of the ESIA findings and mitigation plans. Since then the company has developed a joint community engagement program for the Bazian and Tasluja-located operations and have employed a Community Liaison Officer who ensures ongoing consultation and addressing of any grievances among the communities surrounding the Bazyan and Tasluja project sites. This system, with monthly meetings between the Community Liaison Officer and the local communities will continue, and will be expanded with similar initiatives in Karbala when this operation is taken over. Contact details for the Bazian / Tasluja community engagement representative are as follows: Nazeera AliEmail: Nazeera.ali@iq.lafarge.com Tel: +964 770 1427221

The ESRS will be translated into Kurdish and Arabic languages and locally disclosed in the villages closest to the Bazian and Tasluja plants, as well as near the Karbala cement plant once it is taken over.