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; There is no land acquisition or involuntary economic or physical displacement associated with the project. After review, no adverse project-induced impacts on biodiversity conservation were identified at or near any of the project sites. Indigenous Peoples were not identified at the project area. No Cultural Heritage was identified in the project area. Therefore Performance Standards 5 to 8 are not relevant to project E&S risk mitigation.

All the project sites have operated for many years and will not be expanded under the terms of the Project, though there may be minor debottlenecking. Farmakom has invested to install new technology and equipment in its manufacturing sites in the past few years, with the results that air and water emissions are now much improved from previous conditions, and will meet IFC E&S requirements upon successfully implemented proposed mitigation methods which are defined in the attached Environmental and Social Action Plan (ESAP). The current operation at the Zajaca smelter site has no cross boundary impacts and has limited impact to nearby village. Farmakom is working with the Serbian government to propose mitigation methods for legacy contamination at Zajaca site. The potential adverse E&S impacts of this Project are therefore few in number and limited to project sites and may be readily mitigated. This is therefore an E&S Category B project.

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

- Strengthening E&S Management
- Occupational health and safety
- Air emissions and abatement
- Wastewater treatment
- Solid and hazardous waste management
- Legacy contamination
- Community health risk
- Road transportation and community safety
- Food Safety and Quality Management system, recall management

Farmakom 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 Social and Environmental Performance Standards and the World Bank Group (WBG) environmental, health and safety (EHS) guidelines. The information about how these potential impacts will be addressed by Farmakom is summarized in the paragraphs that follow. Further information is provided in the attached ESAP, which is agreed upon by IFC and Farmakom and will address the compliance gaps with IFC’s requirements.

1. Social and Environmental Assessment and Management Systems
Environmental and Social Assessment: Farmakom has contracted external experts to work with internal technical teams for the environmental assessment of various renovation and expansion projects, following the legal requirements of the governments of the countries of operation of the assets. In the event of further expansion or re-opening of currently-closed assets, in accordance with ESAP, and before investing Farmakom will prepare an environment and social impact assessment (ESIA) of the proposed investment, making reference to both the IFC Performance Standard and local regulatory requirements. ESIA reports will be shared with IFC for review and approval if the ESIA is for reopen of an existing mine or before starting to establish a livestock farm.


Environmental, health, and safety (EHS) management and organization: Each manufacturing site has its own EHS management team, although some sites have more effective EHS management than others. Farmakom will strengthen its existing corporate EHS management. The corporate management does not have direct access to EHS performance situations at each subsidiary and has no in-depth understanding of the EHS risks and liabilities at each subsidiary. As required in ESAP, Farmakom will set up an effective corporate EHS management system with fulltime staff and sufficient budgets to manage the corporate-wide EHS performance at each subsidiary, coordinate the EHS improvement projects, identify and mitigate the EHS risks, and manage corporate EHS liabilities. The corporate EHS management team will also need to work with each subsidiary to set up effective EHS management at each plant.

Training, monitoring, and reporting: Each subsidiary in Farmakom has its own program to provide necessary training for all its employees in the field of environmental and social performances related to its operations. Each subsidiary routinely collects comprehensive environmental, health and safety monitoring for its own operations, but there is no corporate management system to report, analyze, and use these monitoring data to improve EHS performance and mitigate risks. The proposed corporate EHS management structure will adopt this role, among others. Each subsidiary reports its general EHS performance to local authority. The reports are public documents and general public have access to the EHS performance reports.

2. Labor and Working Conditions　
Human Resources (HR) Policy and Management:

The Company has a general HR guide but has not developed a formal corporate HR policy, procedures and management. Each subsidiary has its own management, policy and procedures. Farmakom will establish a corporate HR Policy and procedures and will improve HR management systems in line with IFC’s PS2.

Working Conditions and Terms of Employment

Working conditions and terms of employment are mentioned in the written employment contract which is provided to every worker upon taking up employment. Contracts and job descriptions were reviewed for both white and blue collar workers. Terms of employment defined in the contract include wages and benefits, hours of work, overtime arrangements and overtime compensation, and leave due to illness, vacation, or maternity. The contract template is in line with Serbian Labor Law and explicitly mentions requirements parallel to PS2 requirements. The minimum wage is 37.000 Dinar (~300 Euro) in the country. Blue collar workers wages changes from 48.000 to 60.000 Dinar.

Worker’s Organization:

Farmakom management has stated that each employee is free to join worker organizations and confirmed the existence of the union at its all subsidiaries. Collective bargaining agreements are in place.

Non-Discrimination and Equal Opportunity:
HR guidelines of Farmakom mention that it is an equal opportunity employer, and does not make employment decisions on the basis of personal characteristics unrelated to inherent job requirements. Company advertises job opportunities in internet magazines which are open to public and states that non-discrimination and equal opportunity are among the company hiring principles. Considerable number of women employees is employed on the management team. An employee profile data has been submitted by the Company.

Grievance Mechanism
The union provides a grievance mechanism for employees. A documented grievance procedure is available. There is a constant telephone line for all complaints from the community.

Retrenchment:
There are no current plans for retrenchment, however if retrenchment becomes unavoidable, the company will implement retrenchment plan in accordance with PS2 and in consultation with the Union.


Occupational health and safety (OHS): Farmakom does not have corporate OHS management. However, there are OHS officials at each manufacturing plant and each plant designs its own OHS monitoring program. The monitoring results show that workplace air quality meets both local regulatory and IFC requirements, with the exception of lead content in the dust at FAS site, which is slightly above IFC requirement. Use of personal protection equipment (PPE) does not meet good international industry practice (GIIP) because most of the employees do wear hardhats and proper protection clothes. As indicated in ESAP, Farmakom will take appropriate methods to reduce workplace lead levels at FAS and require employees to wear proper PPE including hardhats and protective clothing.

The pedestrian and vehicle traffic will be separated on each site. Night-time lighting requirements will be reviewed at each site and necessary additional lights will be provided.

Dairy Sabac use 6 tons of ammonia (NH3) as a refrigerant in their cooling systems. The Company will ensure that two level detection and alarm system is installed, any work on units and chillers is only carried out by qualified and trained staff and it is forbidden to weld or use open flames unless special safety instructions are observed. Suitable personnel protective equipment (PPE) and breathing apparatus will be stored in an appropriate location.

There have been no fatalities in Farmakom’s operation history. The incidence of lost time accidents is in the normal range for industries of this type.




3. Pollution Prevention and Abatement
Environmental Compliances: At FAS (car battery manufacturing), the sanitary wastewater is trucked out to municipal wastewater treatment plant for treatment. The process wastewater is treated and discharged to municipal sewer. FAS updated all the air emission filtration equipment after Farmakom purchased the plant in 2006. Air emission and process wastewater meet both local regulatory requirements and WBG EHS guideline values.

At Zajaca plant (lead smelter), all the process wastewater is evaporated in the process and there is no discharge. Air emission controls were renovated after Farmakom purchased the plant in 2006, with new wet scrubbers and bag filters for different processes. Air emissions meet both local regulatory requirements and WBG EHS guideline values. Contaminated stormwater is settled onsite before discharge to the nearby creek, which flows into the boundary river between Serbia and Bosnia.

No elevated levels of heavy metals have been detected in water samples collected from the creek before it joins the boundary river, in fact levels for lead, arsenic and antimony meet Serbian, Bosnian and World Health Organization standards for drinking water. The stormwater discharge at Zajaca meets both local regulatory requirements and WBG EHS guideline limits, with the exception of pH and antimony. Antimony leaches from the historical waste slag storage site near Zajaca plant which was created by the sites operations over the many years before it was acquired by Farmakom. High pH is caused by improper storage of sodium carbonate. In accordance with ESAP, Zajaca plant will build covered warehouse for proper storage of waste batteries, sodium carbonate, and other chemicals.

Dairy Sabac operates three heavy oil fired boilers. The maximum measured NOx emission from existing boilers is around 1000 mg/Nm3 (3% Dry oxygen content). SOx and PM (Particulate matter) will also be measured and the Company will reduce its emissions through burning adjustment, and in particular reduction of excess air. Ultimately the boilers will be converted to natural gas firing.

Resource conservation and energy efficiency:

The approximate specific water consumption is 15 m3/ ton for Dairy Sabac which is higher than the industry benchmark range of 10-11 m3/ton (average figure for cheese and milk production). The company will undertake a water audit and study, and identify measures to improve water usage efficiency.

Dairy Sabac consumes approximately 0.20-0.40 kWh/l processed milk electricity for its operations which is around industry benchmarks. There is an energy management program in place and several projects are being implemented accordingly, (e.g.: insulation of valves, management of steam traps, steam condensate recovery, installation of economizer, changing the operational pattern of air compressors etc)

At Zajaca plant, the new technology has a specific energy consumption of around 3.7 GJ/t lead, which is lower than the industrial benchmark in WBG’s EHS guideline. Due to the nature of production, limited water is consumed at Zajaca and FAS plants.

Water and Waste Water Management:

Wastewater generated at Dairy Sabac ranges between approximately 1500- 2000 m3/day depending on seasonal variations in production capacity, thus the amount of process water utilized..

Periodical measurements of the waste water show that discharge water quality does not meet WBG EHS Guideline values. Currently wastewater is discharged to Sava River via municipal sewage system without further treatment. Furthermore, company reported that with the increasing production, the amount of wastewater will be increased.

Following implementation of water savings projects arising from the audit, as described above and in the ESAP, Dairy Sabac will design and implement upgrades to the process waste water treatment systems, such that these systems are able to treat all waste water arising from reasonably –expected future production levels to WBG EHS Guideline values.



Solid and hazardous wastes: Smelter slag and tailing wastes arising from the Zajaca operation have been stored at a valley nearby since 1938, well before Farmakom acquired these assets. Slags generated by Farmakom’s ongoing operations are also disposed of to this site. The sanitary wastes are also dumped to the nearby area. There are also some industrial wastes stored near Lece and Lojane sites, which were generated before Farmakom purchased these plants during the privatization.

It is understood from Farmakom that Farmakom has no legal liability for these legacy contamination. At Zajaca site, the Serbian Government will cover the waste storage site with geotextile/clay and rehabilitation, including a leachate treatment component.

This is an industrialized area and it is expected that the government will ultimately construct a hazardous material disposal site, though the timescale for such an investment is uncertain. When constructed, Farmakom would use such a facility to dispose of its solid and hazardous wastes including slag.

In advance of such a development, Farmakom will regularize its disposal of hazardous materials. Options include obtaining a legal permit to dispose the slag at the dump site near Zajaca plant and to evaluate feasible technical options to temporarily store the new slag safely, with collection and control of leachate, without discharge to surface water. Farmakom will also dispose the sanitary waste at a local government permitted sanitary waste landfill.

At other plant sites, the solid and hazardous wastes generated by Farmakom operations are picked by different qualified contractors for recycle or disposal.

Refrigerants: Approximately 200 kg non-ozone depleting refrigerant R404 is in use in the dairy distribution system.

Fire prevention and emergency response (ER): Farmakom’s raw materials, including used batteries and concentrated sulfuric acid, are hazardous. The storage, handling, and transportation of these materials pose dangers to the employees. At the plant level, there is related training for handling procedures of hazardous materials. There is adequate firefighting equipment onsite with proper maintenance. Clinic is available onsite for both routine first aid and emergency care. The external fire trucks and ambulance could reach site in 10 to 15 minutes for different subsidiaries. Fire prevention and emergency response (ER) are included in new employee trainings and annual refreshers. Each subsidiary conducts routine drills and joint drills with local fire brigades for firefighting and ER.

Fire detection and alarm system shall be installed in warehouses Dairy Sabac. Life and Fire Safety aspects of all buildings will comply with local requirement.

Greenhouse Gases (GHG): At FAS and Zajaca, the main GHG sources are electricity, natural gas, and liquid fuel. At Sabac site, the main GHG sources are fuels, electricity, and wastewater treatment. The main operations at Farmakom generates approximately 24,100 ton/y CO2 equivalent GHG per year. Farmakom plans to work with IFC energy efficiency team for energy efficiency programs, especially at its foundry site.


4. Community Health, Safety, and Security
Community health: FAS site is located in an industrial area and there is no residential area nearby. Zajaca Village is approximately half kilometer west of Zajaca plant. From 2006, Farmakom invested in Zajaca and FAS sites for technical renovation and expansion. In the process, Farmakom stopped the old smelters, built new smelters with efficient filtration equipment, and started to control fugitive dust onsite. Currently, the lead emissions from Zajaca and FAS sites meet both local regulatory requirements and WBG EHS guideline values. Ambient air quality parameters for particulate matters and lead levels at multiple locations of Zajaca village are all much lower than local regulatory requirements (mg/m2/day). As required in the ESAP, Farmakom will collect air quality samples at Zajaca Village for lead and particulate matters analysis in the unit of mg/m3. Farmakom will also monitor the drinking water quality at Zajaca Village.

Community safety and security The raw materials and products are transported in and out of Farmakom facilities by trucks. The transpiration routes at FAS are in fair conditions. The access road to Zajaca plant goes through Zajaca Village. As the major user of the road, Zajaca plant will co-finance the reconstruction work of the road with local government. As indicated in ESAP, Farmakom will require all its drivers to complete a recognized defensive driver training course and to have annual refresher of safe driving training.

There are small tailing dams at the Farmakom’s Lece mine site. As required in the ESAP, Farmakom will contract an independent expert to evaluate the safety of tailing dams at Lece mine site.

Food safety issues are an important part of Dairy Sabac’s quality management efforts, as they have the potential to directly impact community health and safety as well as the company’s reputation and business model. Farmakom implemented HACCP and GMP procedures, which will help to minimize the risk of pathogens and microbial contamination of its products. Dairy Sabac has an active grievance mechanism for the customer complaints and regularly monitors the number and root cause of complaints. Traceability practices and product recall procedures are available in case of any need.

Supply Chain of Dairy Sabac- Livestock farms and milk collection centers are well equipped and comply with good industrial practices. Farmer evaluation sheets are available and properly filled. Veterinary inspections are periodical; vaccination certificates are up to date and as required by national law. The manure is used for fertilizing purposes on the farms belong the farmers.


Security personnel: Farmakom subsidiaries do not hire external security contractors. They have their own security personnel, which conducts routine ID check at the gates and security monitoring. The security personnel do not take weapons during work. For serious security issues, they report directly to the local police station.

Given the limited potential for adverse social and environmental impacts arising from the project, community engagement is not required by the Serbian authorities for the project. Publication of this ESRS and associated Environmental and Social Action Plan constitutes the client’s first community engagement related to its project plans. The information about the Project will be shared with the community through publishing this Environmental and Social Review Summary and the relevant action plan. As part of its corporate quality and environmental management systems, Farmakom will establish corporate communication procedures to openly share information with third parties and to address community concerns about possible adverse impacts of their operations and control measures in place to mitigate against these. The company performs charity activities regularly, such as supplying education scholarship for its employees’ children. Zajaca Smelter is the main employer in the region, is actively contributing to the local communities through donations, assisting in organization of different social events, financing activities of the local football club, etc. Management of Sabac Dairy Plant organizes regular trainings and technical visits to countries (Austria, Germany, and Hungary) for its milk suppliers and also distributes fertilizers and feed for the farmers. Company is also one of the sponsors of Partisan Serbia Soccer Club. Company will identify additional opportunities to further engage with the communities in the vicinity of its premises.

Farmakom will disclose the Serbian version of this document at the following locations, in local newspapers and its website: Sombor Gradska biblioteka "Karlo Bjelicki Sombor" Trg cara Lazara 3 Sombor, Srbija + 381 25 420 266 Sabac Sabacka biblioteka Masarikova 18 Sabac, Srbija +381 15 345 204 Loznica Narodna Biblioteka "Vuk Karadzic" Loznica Svetog Save 5 Loznica, Srbija + 381 15 882 123 Please contact the following for inquiries or concerns about the environmental and social impacts of this project. Name: Dragica Mijatovic Street address: Farmakom MB, Hajduk veljkova bb, Sabac Phone: + 381 15 362 800