Environmental, Health, and Safety (EHS) Management and Organization - The Company currently operates a rotary veneer lathe and dryer and has recently acquired a non-continuous plywood line. It also owns a green lumber mill which was not operating at appraisal. All wood processing operations occur in an 18 hectare operation within an industrial trade zone in Warnes, Santa Cruz Department from which wood products are shipped overland through Arica, Chile. The proposed investment will not create new or expanded E&S risks at the primary mill and will significantly reduce solid waste and green house gas (GHG) emissions per production unit.
The most significant E&S challenges are to improve forest management practices and increase market-based incentives and rewards to IFAs for sustainable forestry. Wood procurement and forestry operations are centered 300 km to the north in Ascencion where the Company has a regional office, a wood yard and equipment support facility which would be expanded under the proposal. The Company proposes to use deliberate and step-wise improvements in forest management practices which lead to FSC Forest Management certification and assure its Chain-of- Custody traceability and labeling system (“CoC”) is robust and operative. The Company ensures the legality of all wood in its possession through internal control procedures which will be independently verified using the Verification of Legal Origin (“VLO”) scheme.
Management Program, Systems and Organizational Capacity: The Company has been operating for eight months and has established a functioning social and environmental management system comprised of sustainability principles, appropriate staffing, operating procedures, and training functions. The Company has an enterprise-wide environment and safety manager, a forest operations general manager, competent coordinators for both supply chain verification and forest certification, and has recently hired a forest operations manager. The Company has elaborated its Social and Environmental Management System (SEMS) into a series of manuals, training materials, and monitoring templates which are being implemented and were reviewed within veneer production. The Company also has developed operating procedures for forest management, extraction and primary processing procedures which are included in a forestry operation manual used during 2010 and which was also reviewed by IFC. The Company has two previously FSC-certified forest concessions which it no longer actively manages due to unsuitable species mixes. The Company has agreed that it will re-certify these concessions prior to reactivation.
During 2010 the Company purchased roughly 19,000m3 of logs for veneer production through three types of purchase mechanisms: direct purchase and extraction of standing timber from IFAs using Company-managed harvesting and transportation equipment (12% of total); contracts with suppliers who are responsible for harvesting and transportation of standing wood from IFAs and private concessions (72%); and spot purchases at the mill of logs from other forestry organizations focused on hardwood species (16% ). Under the proposal the Company seeks to increase the amount of wood which it purchases directly from IFAs with a commensurate decrease of roundwood purchased through 2nd and third parties. The goal is to secure a more sustainable and predictable supply of high quality wood through improvements in the management of harvest operations.
The Company proposes to increase its own harvesting capacity, assume direct control of contract harvesting, and to gradually increase the IFAs’ capacity to manage harvesting and primary milling. Transferring these forestry practices across all forest management operations is the Company’s most significant E&S risk which they plan to mitigate by: (i) opening two satellite offices, (ii) hiring and training additional technical staff, (iii) increasing their direct responsibility for harvesting through the purchase of equipment , (iv) working closely with community harvest contactors to ensure safe and reduced impact operations and (v) development of a robust monitoring and reporting system which will improve compliance and performance.
Social & environmental assessment: The wood processing facility was designed, permitted and constructed in 2006 as a “Type 3” operation under the 2002 Environmental Regulations for Manufacturing Industries (RASIM, Ley 1330) which required three steps: approval of the Project Description (Ecocon, 2007) , development and approval of an Environmental Management Plan (EcoCon, 2007) and completion of an Annual Environmental Report. The Warnes Municipal Environmental Authority re-approved these documents and confirmed the Company’s compliance in April 2010. Inspections are conducted annually by the Municipal Environmental and Occupational Safety authorities and no non-compliances have been identified. The Company operates an active and well-documented training program for occupational health and safety. Information gathered at appraisal indicates the wood processing facility is materially compliant with IFC PS1 requirements.
Within the forest operations E&S assessment requirements and review procedures for all forestry activities are founded in Bolivia’s comprehensive Forestry Law (Ley Forestal 1700, 1996; Ley Forestal 1600, 1994) which mirrors the FSC Principles and Criteria for sustainable forest management. The E&S review of forest operations is included in the development of each IFA Forest Management Plan (“PGMF”, typically 20-35 years) which is reviewed every five years and forms the basis of the Annual Harvest Plan (“POAF”) which specifies more explicit silvicultural and conservation requirements. The PGMF details the community’s objectives for forest management and summarizes the biophysical, sociocultural and economic data of the indigenous community and the forest area. These management plans are elaborated by the Indigenous Forestry Associations (IFAs) themselves with the required assistance of qualified forest engineers and are then reviewed by their respective TCO and approved by the Forestry Department (ABT). IFAs are legally- recognized representatives of their respective indigenous communities and operate under the authorities and forests allocated to them by their respective indigenous federations (Tierras Comunitarias de Origen, “TCO”). The management planning process observed includes iterative social and environmental risk identification and mitigation planning based on appropriate free, prior and informed consultation with affected communities as defined within Bolivian Forestry Law, IFC’s Performance Standards, and FSC. All of the Forest Management Plans (PGMF) reviewed included assessments of environmental and social impacts at a level appropriate for natural forest management.
Labor and Working Conditions –The Company has 137 employees, including 20 women, at its veneer and lumber mill in Warnes and a growing staff of 15 in forestry/wood procurement in Ascencion. The Company expects to increase forestry staffing to 45 in 2011 and total direct and indirect employment associated with all operations is projected to rise to 1,500 including IFA employment.
Working conditions and protection: The Company’s labor relations are based on a Human Resources policy which meets IFC’s PS2 requirements and which is made available to all new employees at hiring. The Company operates a single shift at the veneer plant and most often two 12 hour shifts on the drying line. Compensation and benefits appear to be well within the Bolivian standards and the company current pays more than twice the established minimum wage. Social Security and Health Insurance are paid directly by the Company but workmen’s compensation is not. The Company observes non-discrimination and equal opportunity protections as required by Bolivian law and probationary periods and terms of employment are clearly stated in its Human Resources Policy. The Company policies also observe freedom of association regulations although no worker organizations are currently active. The Company has a prescribed “open door” grievance procedure with and a corporate representative available from 15:00 to 16:30 each day which is documented and functioning and will be replicated in its forestry operation center in Ascencion. The Company provides transportation for all employees from Warnes and supplies all meals during working hours without charge. The forest operations division established working and living conditions for company-managed camps which were tested in 2010 and are being updated. The Company will adopt its current grievance procedures used at the veneer mill for its forestry operations and conform to FSC requirements for working and living conditions which will be assessed and disclosed annually.
Occupational health and safety: SLV has taken full advantage of the wealth of worker health and safety programs that have been established in Bolivia’s forestry and forest products sector. There are well-documented procedures for assessing and managing OHS risks which are largely observed. The use of personal protective equipment was satisfactory and risk-appropriate signage and accident prevention systems were adequate. Review of workplace accident records and training plans indicated a proactive and risk-based approach to the management of OHS risks and emergency management plans for evacuation and fire suppression equipment have been installed and drilling documented. The Company’s root cause analyses and preventative actions were robust. As stated above, the Company’s largest challenge in this area is expanding this operational discipline from its processing practices into expanding forestry operations and into the contractor base used by IFAs. The Company proposes to obtain 3rd party verification of its OHS systems through OHSAS 18001 certification for the mill within six months of closing and proposes to extend this OHS system to forestry operations within 18 months from first disbursement.
Pollution Prevention & Abatement - The mills current veneer peeling and drying create substantial volumes of waste and allow wood recovery of 50 percent of wood transported to mill gate. Bark, side slabs, trimmings and rejected veneers are chipped and stored on site until a buyer can be found leading to significant volumes of chips which are a potential source of greenhouse gas emissions and surface water contamination. Water use at the milling area is estimated at 5 to 6 cubic meters per day for irrigation of logs, log steaming and sanitation. The client will mitigate potential surface water contamination through development and implementation of a water monitoring program which is included in the ESAP.
Resource efficiency: Water is abstracted through a 150m borehole and log irrigation and steaming water is recycled through proper grading, plastic sheeting and a system of ponds which significantly reduce water use. The Company has agreed to initiate a surface water monitoring system to ensure potential contaminants from wood are kept on site. The Company has identified buyers for wood chips and the proposed plywood line, which would run on veneer line waste, would reduce total waste generation. The facility operates on a natural gas fired boiler which distributes heat to the veneer drying line, the log steamer area, and green lumber kiln. The current veneer drier is LNG fired, not optimal for tropical hardwoods, and would be supplemented or replaced under the proposed project reducing unit energy costs by an estimated 10%. The Company estimates that adding improved drying capacity and the plywood production will increase waste wood recovery by 50% and reduce solid waste by at least 20%. Estimated GHG emissions associated with current production operations (Scope I and II) are approximately 2,000 tCO2e per year.
Pollution prevention & pesticides use: Potential sources of pollution risk associated with forestry operations include erosion and surface water sedimentation during road construction and harvest operations. Improper fueling and maintenance of motorized equipment and overuse of pesticides at log decks can cause localized contamination of soil and surface water. Forest worker camps are another source of solid waste and water contamination from inappropriate sanitation services. The Company proposes to mitigate these risks by installing proper waste management and maintenance facilities, strictly adhering to road construction guidelines, and training staff and contractors in the use of reduced impact logging techniques to reduce site disturbance. Forest camp guidelines and operating procedures have been established but must be further trained-in and monitored. Chemical procurement is managed centrally and the selection, storage and application of pesticides and fungicides, and other potentially hazardous materials, are controlled by the Company’s applicable procedures although more vigilant monitoring will be required to achieve FSC certification. Increasing oversight of directly controlled contractors and those used by IFAs for forest harvesting and road building operations will be necessary to prevent avoidable soil erosion and surface water contamination and ensure compliance with IFC guidelines.
Community Health, Safety and Security – Transportation of round wood from the forest and finished products are likely the single greatest source of hazard to communities. The Company milling facilities are located in a legally-established and access-controlled export zone on the edge of Warnes, Bolivia which also includes cement manufacturers, grain millers, and truck and car import operators. Noise abatement procedures are in place and monitoring data indicates fence-line noise limits are not exceeded. The Company uses a private security service to control activities and a well equipped and knowledgeable guard is at the entrance gatehouse at all times. The guards interviewed were well trained and equipped and the Company properly vetted the security company. Vehicles entering and leaving the facility are logged and observed for compliance to Bolivian roadworthiness requirements and drivers are provided with information on Company policies concerning safety, use of drugs and alcohol, and driving records periodically checked by the EHS manager’s staff. The Company proposes to install similar procedures, and possibly remote sensing/GIS systems, for all owned and contracted vehicles moving between the forest and log yards in Ascencion to reduce risks. Monitoring of compliance with procedures, particularly for logistics contractors is proposed. Other risks for communities include forest fires and a possible influx of workers from other regions.
Biodiversity Conservation and Sustainable Natural Resource Management – Bolivia has more than 50 million hectares of forest cover with approximately 60 percent of this area (28 million has) classified by the Bolivian government as “permanent production forest” based on hydrology, biodiversity and production potential. As previously described, Bolivian forestry law and its technical directives (MDSP 1998) require the application of a consistent set of forest management standards.
The PGMFs are 50-100 page plans which are based upon floral and faunal inventories which must be updated and renewed every five years. Annual harvest compartment size and removal targets are determined by overall forest composition and growth estimates which specify the cutting cycle (20-35 years). The PGMF details the community’s objectives for forest management and summarizes the biophysical, sociocultural and economic data of the indigenous community and the forest area. The PGMF also specifies conservation set-backs from water sources and requires that areas of high conservation value, including critical habitats and rare/threatened species, be identified which results in 15-20% of each forest area being removed from extraction activities. The forest practices and management systems the Company proposes to adopt are built on 15 years of practical experience which has earned Bolivia a reputation as a global leader in tropical forest management. These standards are founded in the FSC Principles and Criteria which, when assessed by an FSC-accredited certifying body, qualify for FSC labeling and any potential market advantages.
Bolivia forest policy has changed under the current administration from an industrial concession-based system to a more community-based model. Whereas 90 percent of the forests were formerly dedicated to private industrial concessions, communities in Bolivia now manage or have access to over 15 million hectares of productive forests. While indigenous communities may have now have access to production forests, with few exceptions they have not yet developed the technical skills and business acumen required to manage forestry operations at scale. Bolivian law requires all forestry associations to engage competent forest engineers to develop long-term management plans (PGMF) and to provide oversight for determining and conducting annual harvest plans (POAF). Although some associations actually conduct harvesting themselves, most contract road building, felling and wood transportation to third parties who are managed by their forestry consultant. Oftentimes, these consultants and contract harvesters are paid “in kind” by the associations due to a lack of access to finance
Sustainable Management: All wood extraction must comply with Bolivian Forestry Laws, and approved Forest Management Plans (PGMF) and Annual Extraction Plans (POAF) are requisites for any timber sale. Environmental and social impacts are described and measures identified to avoid, minimize or mitigate these at the forest level. Each POAF provides additional detail which generally include detailed forest inventory, conservation planning and road alignments, and post-harvest monitoring plans. The POAF must be reviewed and approved by the Forest Department (ABT). All such documents described herein were available for review during appraisal and found to form a substantial basis for identifying and managing E&S risks. Nine of 10 of the IFAs with which the Company proposes to work have approved PGMFs and forest inventories required for POAFs are currently underway. All of the Company’s wood suppliers are required to provide documentation of source and legal origin. Under the proposal the Company would expand its direct sourcing from 8-10 IFAs, several of which it established commercial relations with in 2010. While only one of the IFA’s providing wood in 2010 was FSC-certified, two or three others expect to be certified in 2011-12 with Company assistance and the balance will be brought to FSC conformance through a step-wise and continuous group certification system which has been successfully tested in Bolivia and elsewhere. The Company proposes, as its first step in improving supply chain management, to engage Rainforest Alliance’s SmartWood program, to obtain a normalized Verification of Legal Origin (“VLO”) using a standardized protocol and annual conformity assessments. Under the proposal the Company eexpects to be buying 75% of its wood needs from FSC-certified forests by 2014 and the balance from third parties with established legal compliance. The Company already has a documented traceability management system and a valid FSC Chain of Custody certification (SCS-COC-001502) which would be updated prior to disbursement. Public summaries of FSC forest assessments are disclosed on the FSC Certificate Database website (
http://info.fsc.org/) and will be made available at the Company offices.
To achieve these objectives, SLV is engaging with the local indigenous communities with the support of local/international NGOs mentioned above and WWF’s Global Forest & Trade Network (GFTN), and Fundacion Puma. The Company will set aside agreed upon funding to directly support IFAs and indigenous federations overseeing forestry in each TCO. Through the conduct of an FSC Preassessment Rainforest Alliance’s SmartWood program will assist in establishing baseline conditions for each IFA and help distinguish and assess the quality and appropriateness of consultation between the Company and the IFAs and between the IFAs and their respective indigenous communities. Based on the preassessment results the Company will establish a corporate social engagement strategy which will be codified in the Companies forest Operating Procedures Manual and agreements with IFAs.
Bolivia’s Fundacion Amigos de la Naturaleza (FAN) has been working with the Wildlife Conservation Society in the Reserva Blanco y Negro since 1992 and has conducted extensive floral and faunal surveys upon which the Initial Management Plan was approved in 2009. The plan identifies critical habitats and “no-go” areas and will provide some technical direction to the IFA’s harvesting activities to ensure regeneration. WWF’s GFTN is likely to provide additional support in establishing and strengthening the group certification model which appears to be appropriate to IFA’s. Other specialized NGO’s or service providers will be contracted to work directly with IFA’s to improve their business acumen, internal communications and consultation for investment planning, and capacity to meet FSC requirements.
Conservation of biodiversity & Natural forests: In spite of Bolivia’s advances in terms of planned harvesting and use of reduce impact logging practices there remain substantial risks to the sustainable forestry including un-regulated and planned conversion to agriculture, illegal logging and live animal trade, wildfire and climate change-related stress. According to FAO, Bolivia has lost an average of 280,000 ha/year (or 8.9% of its total forest area between 1990 and 2010) largely due to direct conversion to commercial agriculture. Short-term economic horizons, poor access to finance for forestry operations, and actual extraction volumes well below those which are technically feasible reduce forestry competitiveness. One of any company’s challenges in natural forest management in Bolivia is to increase the number of merchantable species and commercial volume. The fixed cost basis of sustainable forestry – including management plans, inventory, conservation set-asides, and roading – is expensive and reduction of unit costs and increased profitability lies in species and product diversification as well as improvements in efficiency and yields. The Company proposes to play a direct role by assisting IFAs to improve the PGFM process through: application of improved inventory and planning; identification of critical habitats and other areas of high conservation value; use of reduced-impact harvesting techniques; increasing the number of merchantable species and volumes; and improving access to markets requiring documented legal origination and FSC conformance.
Indigenous Peoples - The indigenous communities of Guarayos and Chiquitania were legally recognized through several legislative changes to the National Land Reform policy in the 1990’s. The 1996 Supreme Court Decision (Decreto Supremo Nº 25673) recognized these organizations’ ability to legally claim traditional lands as indigenous territories (Tierras de Comunitarias de Origen - TCOs) and the Forest Law 1700 of 1996 established the foundation for TCOs to establish and recognize Indigenous Forest Management Associations (Unidad Comunal de Producción Forestal or “IFA”) to apply for specific forest areas for extractive management under specific conditions and requirements. Thus, IFAs are legal entities, operating within prescribed areas under the authority of TCO Guarayos (“COPNAG”) and TCO Monte Verde in the Chiquitania. Through an expanded and reciprocal relationship the Company proposes to secure its wood supply by assisting these forestry associations, and the two TCOs, to establish management practices which will meet national laws and achieve FSC certification. SLV has had substantial engagement with each of the IFAs and has negotiated executed letters of intent and approved contracts for collaborative management activities in 2011 which were discussed with IFA and TCO representatives during appraisal.
Avoidance of adverse impacts: Areas established and set-aside by each TCO for forestry are generally remote and IFA members live in their respective villages, often times quite distant from forest management areas. Depending on the size of the indigenous community, and diversity of their economies, the importance of the IFA in each community is variable. As stated above, the IFAs are recognized as legal entities which are able to enter into harvest and management agreements at the behest of their communities and under the legal jurisdiction of the TCO titular authorities. In accordance with the Forestry Law each association must engage the services of a registered and qualified forest engineer in order to develop the forest management plans (PGMF) and annual harvesting plans (POAF) which must conform to all other aspects of the Forest Code and be approved by the competent legal authority (ABT). Plans must include inventory information and cutting cycles, assess environmental impacts and primary mitigation measures, and identify areas of high value for biological or cultural importance. The PGMF must identify the nature of the IFAs relationship with its particular community’s interests and describe the prospective use of proceeds from wood and non-timber sales. Most IFAs have prior experience either selling standing timber to logging companies and some have the ability to engage in felling and primary extraction. As the IFAs mature and acquire technical forestry knowledge and business skills some chose to become more integrated and may conduct some milling operations with increased value-added returns.
Information disclosure, consultation, and informed participation: The primary risks associated with the purchase of wood from indigenous associations fall into two areas: The adequacy and transparency of Company interactions with each IFA and the IFAs’ interactions with its own communities and distribution of the development benefits associated with forestry. Continued interest in, and increasing the rewards for sustainable forestry, are the primary mitigants to illegal logging and conversion to agriculture. For transparency the Company has proposed to engage IFAs with a process which starts by establishing Letters of Intent (LOI) which spell out the nature of the relationship and respective roles of each party, and the need for the IFA to agree to promote and establish management practices which comply with local laws and conform with FSC. Once an LOI has been reviewed by the IFA and the recognized community authorities it is reviewed by the respective TCO. The TCOs establish some elements of wood pricing and in Guarayos the TCO (“COPNAG”) has also created a Technical Forestry Unit (AFIC) which provides IFAs support on POAF reviews and LOIs for wood pricing. The Company then proceeds to establish a Contract which provides more specific terms including wood grading and pricing, management requirements, recourse for possible disputes and methods of payment. Pricing information is explicit in each contract and willing-buyer willing-seller pricing is established through LOIs, negotiated contracts, competition from other offerors, and market information provided by ABT. The Company proposes to encourage IFA’s to make continual improvements in their forest practices through competitive rates and performance premiums at harvest completion for those IFAs moving deliberately toward agreed-upon FSC milestones.
Impacts on traditional or customary use: Sharing of development benefits derived from forest extraction, and ensuring adequate resources are reinvested into forest management are the second risk and proper consultation and benefits sharing are key to retain the interests of the community and reinvestment of an appropriate amount of net proceeds into improved forest management such as road maintenance, post-harvest security, ensuring the next year’s harvest plan is properly conducted, and that resources are set aside to cover the costs of annual FSC audits. Firstly, proceeds from timber sales must pay for the services of the forest engineer for PGMF and POAF preparation and extraction oversight. While communities are reasonably different in their decision making processes each have an established political system and history of the management of proceeds from common resources (fisheries, Brazil nuts, timber) into community infrastructure. In Guarayos the IFAs are responsible to a single indigenous village and many or most able-bodied adults assist in some aspect of forest operations. In CTO Chiquitania a single IFA may be responsible to multiple villages through a commonly established oversight group. During interviews several IFAs indicated that the village development committees had used net proceeds for improving schools and health clinics, building administrative infrastructure and purchasing forestry equipment but there have historically been issues with benefits sharing and transparency in more than one IFA. The legitimacy of IFA of operations, the quality, transparency and adequacy of consultation within affected communities and other stakeholders, and the appropriateness of benefits distribution and reinvestment in forestry will be reviewed in prospective IFAs during an FSC Pre-assessment by an accredited FSC certifying body prior to first disbursement. The FSC annual assessment process would review the consultative process and results are disclosed by the certifying body and the respective IFA.
The Company will further mitigate risks to indigenous communities by engaging local and international organizations with experience to assist in building IFA technical, organizational and administrative capacity and to achieve implement management practices which will achieve FSC certification. Through the social engagement strategy described above the Company proposes to contract one or more local service providers to assist in this regard and has ongoing discussions with several NGOs including the Amazon Alternative, Rainforest Alliance, CADEFOR and WWF to strengthen the IFA’s and help standardize the Company’s community engagement strategy. The Company proposes to adopt the FSC Group Certification model to develop IFA and community capacity through a clearly defined and stepwise approach. This group model has been successfully supported and tested with IFC’s Advisory Services support and the help of WWF in Bolivia. The FSC pre-assessment (above) will review each of the IFA’s structure, appropriateness of consultative mechanisms in PGMF development, and their unique capacity to move forward and form the basis for a revised FSC Certification Plan which will be submitted to IFC for review and comment prior to first disbursement.
Cultural Resources – The Guarayos and Chiquitania peoples have had historical cultural, artistic and religious affiliations with forests. Although most villages are no longer located in the forests some aspects of today’s livelihoods and lifestyles represent cultural heritage deeply rooted in prior and current ethnobotanical and extraction practices. As part of the FSC certification process (FSC 3.3) the Company will ensure that any sites of special cultural or religious significance to indigenous people will be clearly identified through consultation and protected under the PGMF and POAF. During the FSC Preassessment and annual update assessments the certifiers will review the communities’ continued access to such sites and whether such areas are adequately incorporated in the LOIs and Contracts. The Company will establish chance find procedures to avoid significant damage to cultural heritage.
