While all Performance Standards are applicable to this investment, IFCs 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. If IFCs investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards

PS 1 – Assessment and Management of Environmental and Social Risks and Impacts
PS 2 - Labor and working conditions
PS 3 - Resource Efficiency and Pollution Prevention
If IFC’s investment proceeds, IFC will periodically review the the project’s ongoing compliance with the Performance Standards
Because the activities involve improving existing centralized heat production and distribution within established footprints in residential areas, there are no expected impacts related to Biodiversity Conservation and Sustainable Management of Living Natural Resources (PS6), Indigenous Peoples (PS7), or Cultural Heritage (PS8). Newly constructed boiler-houses are mostly located within land plots previously allocated by municipalities for the existing heating plants. The new CHP plant will be located at the existing facility footprint, so issues related to Land Acquisition and Involuntary Resettlement (PS5) are not likely to arise. The project will not have impacts on public health other than from air emissions, which are addressed in PS3.

Primarily intended for replacement/upgrading of heat networks and rehabilitation of obsolete boilers to improve operating efficiency and reduce heat and water losses in the system, this is a Category B project. The Group’s planned efficiency improvements are expected to result in lower fuel and electricity consumption, and, consequently, will reduce emissions of multiple air pollutants, including carbon dioxide (CO2), per unit of energy generation. Further reduction of emissions will be achieved through closure of inefficient equipment and installation of particulate matter (PM) emission control on operational coal-fired boilers.

IFC's appraisal considered the environmental and social management planning process and documentation for the project and gaps, if any, between these and IFCs requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable period of time, are summarized in the paragraphs that follow and (if applicable) in an agreed Environmental and Social Action Plan (ESAP). Through the implementation of these measures, the project is expected to be designed and operated in accordance with Performance Standards objectives. Main environmental impacts from the Company’s operation are associated with the emissions to air from the handling and combustion of coal fuel. To bring the Company into full compliance with IFC’s requirements, KKS will develop and implement the Air Emission Reduction Program for the City of Kiselevsk, which will include: a closure of inefficient boilers; installation of dust controls for the remainder of their operational assets in Kiselevsk to achieve 50 mg/m3 for dust emissions; and measures to reduce fugitive dust emissions from coal storage and handling to achieve workplace and ambient air quality compliant with local standards and WBG''s EHS Guideline values.

Currently, KKS sets the corporate development strategy, including business planning and asset acquisitions. However, management of the environmental, health and safety (EHS) performance issues is separately conducted at each of the eleven operating subsidiaries. These individual subsidiaries currently rely on the legally required management system for EHS performance, which is mainly designed to secure permits from authorized regulatory agencies.

To improve environmental and social performance, the Company recognizes the need to strengthen its corporate-level Environmental and Social Management System (ESMS) and has nascent capacity and commitment. The Company and IFC have agreed in the E&S Action Plan (ESAP) that a corporate ESMS consistent with PS1 requirements will be developed and implemented across the Company. The ESMS required by PS1 is based on a continuous improvement process, similar to accepted international frameworks for quality and environmental management systems, like ISO 14001. While IFC is not requiring a formal ISO 14001 ESMS, its elements may be expanded to meet broader scale of PS1 management system: adequate capacity to oversight of OHS matters and more extensive stakeholder engagement process.

As the first step, the Company will: (1) appoint a corporate Director with responsibility and authority for all EHS matters; and (2) establish an overarching Policy defining the environmental and social principles and specific objectives to guide the Project to achieve sound environmental and social performance, consistent with the national regulatory requirements, IFC’s Performance Standards and World Bank Group’s (WBG) EHS Guidelines. The Policy will also cover the new (CHP) plant for Cargill to be commissioned in 2014.

Risks and Impacts Identification Process
Where KKS Group intends to develop or acquire new assets at some point in the future, the Company should document the establishment of a social and environmental due diligence process consistent with good international industry practice to ensure that risks and impacts will be adequately identified when the physical elements, assets, and facilities of future activities are reasonably understood. That process will include all the necessary steps and methods that are required to screen, identify, analyze, measure, or assess, in quantitative terms to the extent possible, the potential risks and impacts (including environmental, social, health, and safety, and labor and security) associated with the activities to be developed or acquired. Depending on whether the future activity involves development of a Greenfield heat production plants, expansion or acquisition of an existing operating asset, the process will involve either a: (i) full-scale Environmental and Social Impact Assessments (ESIAs); (ii) limited or focused environmental or and social assessments; or (iii) environmental and social due diligence audit. Appropriate terms of reference for the conduct of each of these will be developed as part of the process documentation.

Management Programs
To manage and mitigate the risks and impacts of their operating assets, KKS will develop a tailored set of pollution standards, design criteria, and operating procedures that apply across all operations. These will include, but not be limited to the following pollution prevention and health and safety issues: dust emission controls; hazardous material management; process wastewater management including contaminated storm water; and solid and hazardous waste management.

Organization
To ensure adequate support of the newly designated EHS Director, KKS will clearly define his responsibilities and communicate these to the rest of the Company and site operating staff. The corporate EHS department will also be provided with sufficient authority and resources to achieve effective and continuous E&S performance at all sites. This may include in-house staff, as well as external consultants.

Emergency Preparedness and Response
Emergency Response Plans have been developed for each of the Company’s facilities and are available on site. These plans address potential predictable emergencies (including risks of fires and explosions), communication responsibilities, and procedures for assuring appropriate emergency response by either internal capacities or public authority emergency response systems. The requirements of these Plans are generally known by employees. However, Plans will be updated to require the execution of training and drills to site personnel.

Monitoring and Reporting
KKS will develop a company-wide environmental monitoring framework that can be adapted and used to guide site-specific monitoring plans. The framework will address, at a minimum, air quality monitoring, water quality monitoring, and occupational health and safety monitoring activities. It will identify the specific environmental monitoring measures to be implemented at each site - the parameters to be measured, sampling and analytical methods to be used, sampling locations, frequency of measurements, detection limits (where appropriate), and the definition of thresholds that signal the need for corrective actions. Monitoring thresholds will be consistent with those referenced in the applicable IFC EHS Guidelines (General, Thermal Power).

The results of project-specific social and environmental monitoring should be evaluated and documented at both the project and corporate level. Periodic reporting of progress and monitoring results should be made to the senior management of the Company. Reports should furnish the information and data needed to determine compliance with the E&S policy. The format of these reports will include a summary of findings and recommendations. This information should also be made available broadly within KKS.

Currently the company employs 1,400 people. Twenty five percent of the workforce are on short-term temporary contracts of up to six months (for the heating season).

The Company is not a party to a collective bargaining agreement with a workers’ organization. Human resources (HR) policies of the company and subsidiaries are cross-referenced with the national Labor Code, which guarantees core labour rights to employees, consistently with PS2 requirements. Individual contracts provide staff with information on their terms and conditions and are presented to new employees at the time of hire.

Hiring is conducted in accordance with the Russian Labor Code, and the HR department asserted that there is no discrimination.

The Company currently employs no migrant workers. If the client hires migrant workers for the Project, their working conditions and terms of employment will be substantially equivalent to those of non-migrant workers performing the same type of work.

Staff reduction is being carried out at new boiler houses, due to the switch over to the automated modular boilers. However, numbers of employees made redundant are moderate, and these are mainly seasonal workers. The Company will develop, communicate and institute a company-wide procedure to mitigate the adverse social impacts to employees made redundant, including offers of alternative employment or assistance in retraining efforts.

The Labor Code requires companies in Russia to maintain a hardcopy of a grievance log. However, KKS Group presently has no a formal grievance procedure with outlined roles and responsibilities for dealing with grievances, expected timeframes for responding and what workers can expect in response to any grievance. Such a procedure will be developed and instituted across the Company.

Occupational health and safety (OHS): Health and safety matters are strictly regulated by national legislation. All workers receive information on health and safety at the time of hire and are required to pass exams on their knowledge of key elements prior to beginning their work.

Individual sites are responsible for reporting occupational accidents and incidents and all serious accidents are required by law to be reported to the government. The company maintains an accident log and investigates all incidences of accident. There was 1 fatality in 2011, which was fully investigated, and actions were taken to prevent its reoccurrence in future. There were no other Lost Time Accidents with the company’s employees during last 3 years.
Routine operation of heating systems consisting of gas-fired boiler houses and underground pipelines do not result in significant adverse operational health and safety issues upon implementation of the requirements and measures set up in the design documentation, national laws and regulations.

Boiler houses are equipped with methane and carbon monoxide gas analyzers, as well as fire detection and extinguishing systems. The facilities are licensed to operate as fire- and explosion-dangerous entities; the aforementioned entities are registered in the State Registry.

Key OHS impacts of the project are associated with operation of old coal-fired boilers in the city of Kiselevsk, including exposure of workers to coal dust, ash and asbestos, which is still widely used in old boiler houses for thermal insulation.

To mitigate OHS risks, the Company’s management program will identify all potential hazards to workers, including exposure to dust and asbestos particles, and will develop operational control procedures to eliminate hazardous conditions consistent with good international industry practice, as reflected in internationally recognized documents including WBG EHS Guidelines. Operational control procedures will include (1) Fugitive Dust Control Plan to protect workers, reduce risk of dust explosions, and minimize environmental impacts (please see PS3 section); and (2) Asbestos Management Plan, including handling, removal, transport, and disposal of asbestos. The Company will ensure that the personnel handling asbestos will be adequately trained and protected, including respirators and disposable clothing. The same requirements will apply to the contractors.

At the corporate level KKS Group will upgrade the existing OHS management system to a level equivalent to best international practice, consistent with OHSAS 18001 standard. OHS management system will apply broadly across the Company’s organization, including seasonal workers, migrant workers, and contractors over which the organization has control or influence.

Key environmental aspect of the Company’s operation is associated with the emissions to air from the handling and combustion of coal fuel.

Most of boiler houses are historically located at a close distance to the households to reduce heat losses while conveying the heat to the customers. Proximity to the boiler houses, in some cases, negatively affects the local residents. Key adverse factor is a fugitive dust emission resulting from open coal storages and coal handling. In 2011 there was a complaint received from a local resident in this respect.

To address the issue, the Company will develop a Fugitive Dust Control Plan for coal storage and handling. The Plan will include technical measures to minimize fugitive dust emissions (like use of water spray systems; enclosed conveyors; wind fences in open storage of coal, etc.) and operational procedures, including workplace and ambient air quality monitoring practices. The Company will ensure its systematic implementation at the existing facilities.

Presently, most of old coal-fired boilers in Kiselevsk are not equipped with stack emission control systems either. Emissions of particulate matter (PM) are exceeding local standards and WBG EHS Guidelines values. The Company is currently operating under the terms of an Air Emission Reduction Plan that has been agreed with the local regulator and serves as the basis operation until 2014. To bring the Company into full compliance with IFC’s requirements, the Company will further develop a broader Air Emission Reduction Program for the City of Kiselevsk, which will include: (i) a Closure Plan for the part of coal-fired boilers (after transferring of the heat load to the new modern boiler houses); (ii) installation of dust controls for the remainder of their operational assets in Kiselevsk to achieve 50 mg/m3 for PM emissions; and (iii) measures to reduce fugitive dust emissions from coal storage and handling.

Operation of inefficient boilers results in higher carbon dioxide (CO2), a greenhouse gas (GHG), intensity. Current GHG emissions from KKS Group’s own operational activity are estimated at 250,000 tons of CO2 equivalent per year. Investment program of the Company for 2012-2015 envisages installation of a number of modern modular boiler houses. Replacement of obsolete, inefficient boilers will result in lower fuel and electricity consumption and, consequently, in GHG emissions reduction. The Project will result in direct annual savings of approximately 10,300,000 cubic meters of natural gas and 8,403 tons of coal, which is equivalent to 37,570 tons of CO2 reduction per year.

Water for operational needs is supplied from public systems in the cities where KKS facilities are located. Wastewater is delivered to the municipal treatment systems.
Stormwater management in Kiselevsk is an issue as no central system for stormwater collection exists at the city level. The company’s sites are neither equipped with surface runoff collection and treatment. Presently, surface runoff, which is typically contaminated with suspended sediments, represents a risk to soil and groundwater. Combination of infiltration and runoff control measures, such as compacted soils or protective liners; coverage of coal piles with tents; and systematic measures to reduce fugitive coal dust emissions - should result in lower contamination of surface runoff.

Coal-fired boilers generate the greatest amount of solid wastes across the company’s assets due to the relatively high percentage of ash in the fuel. Ash residues are not classified as a hazardous waste due to their inert nature and are disposed at municipal landfill sites along with other non recyclable solid waste streams. Hazardous waste streams are collected and disposed by licensed contractors.

In accordance with the Housing Code of Russian Federation, local governments and management companies are obliged to disclose information to citizens related to household tariffs, service standards and tariff adjustment mechanisms by their request (regulated by Federal Laws “On adjustment mechanisms of tariffs in communal services” and “On provision of communal services”).

In addition, as part of the corporate-level management system, KKS will put in place an external communication procedure to be implemented at each site. The procedure for each site will be aimed at receiving, addressing, and recording/documenting complaints and communications from communities affected by the operations. The procedure will include a publicly available and easily accessible channel (e.g. phone number, website, email address, etc.) to receive external communications and requests of information regarding their environmental and social performance. Grievances received and responses provided will be documented (such as the name of the individual or organization; the date and nature of the complaint; any follow up actions taken; the final decision on the complaint; how and when relevant project decision was communicated to the complainant; and whether management action has been taken to avoid recurrence of stakeholders concerns in the future).

Hard copies of this ESRS and the ESAP in Russian will be available at the following locations:
KKS head office: 106 Boldina st., Tula, contact person: Iurii Shchukin
Kiselevsk subsidiary: Kiselevsk, 10 Lutugina st., contact person: Sergei Okhrimenko
For more E&S information, please contact:
Iurii Shchukin

mailto:shchukin@in-vek.ru
+7 4872 251621

Broad Community Support is not applicable for this project

Current client performance is aligned with applicable Performance Standards and EHS Guideline requirements. No ESAP is required.