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:

Because this is an investment in a corporate entity to support current operations and further expansion into water and wastewater utilities facilities, the principal Performance Standards to be applied are:

-PS1: Social and Environmental Assessment and Management Systems;
-PS2: Labor and Working Conditions; and
-PS3: Pollution Prevention and Abatement

AEGEA’s activities have the principal objective of reducing water pollution and contributing to improved water quality and enhanced public health in the communities it serves. Based on the results of IFC’s review, Performance Standards 4, 5, 6, 7, and 8 are not applicable to AEGEA’s current business activities.

This is a Category B project according to IFC’s Procedure for Environmental and Social Review of Projects because a limited number of specific environmental and social impacts may result which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. AEGEA’s core business activities in water and wastewater treatment provide essential environmental services with proven public health benefits. AEGEA is presently demonstrating the ability to effectively manage potential environmental and social risks from its business activities through the application of international accepted practices to protect soil, water and air resources.

AEGEA’s water and wastewater management operations provide a valuable environmental service whose environmental objectives are to improve environmental quality and protect public health. The following sections describe in additional detail how these activities are managed by AEGEA in order to meet these objectives.

PS1: Social and Environmental Assessment and Management System

- Environmental and Social Assessment - AEGEA’s business model includes the development of greenfield projects as well as investments in existing assets. The development of greenfield projects is conducted at the state level under Brazilian federal environmental licensing rules which define a process requiring, in some cases, the preparation of detailed environmental and social impact assessments of the aspects and impacts, both negative and positive, in the project’s zone of influence. The stepwise environmental licensing process applicable to most industrial and infrastructure activities, including water and sanitation projects, entails the preparation of feasibility studies in order to obtain preliminary licenses. This is normally followed by more detailed environmental and social impact assessments required to obtain first, a construction license (based on the state regulator’s review of project impacts and mitigation measures), followed by an operating license that is issued after regulatory inspection of the fully constructed project, just before initiation of operations. Federal environmental licensing rules also allow state regulators to apply a streamlined licensing process for small and medium-sized sanitation projects defined as those servicing population centers of up to 30,000 and 250,000 inhabitants respectively which are representative of some of AEGEA’s typical sewer concession areas. The streamlined process allows project sponsors to prepare more simplified environmental and social impact assessments (ESIAs) focusing on potential impacts to socio-economic aspects and to the water quality of the receiving environment.

Surface and groundwater abstraction projects are also required to seek water concession licenses issued by the State or Municipal authorities. Licensing for the water supply systems of the Guariroba concession in Campo Grande, which includes surface and groundwater abstraction activities, was also subject to the results of pump studies to ascertain the productivity and sustainability of the water resource.

In cases where AEGEA becomes the concessionaire of an existing asset, AEGEA conducts an audit to help prepare the investment plan required under the concession. The audit includes a review of status of legal permits, including environmental licenses. Where environmental licenses are already in place, AEGEA ensures that facilities continue to operate according to permit requirements, otherwise, AEGEA addresses existing gaps in licensing to bring the facilities into compliance. For example, as part of the initial evaluation of new water concessions, AEGEA reviews the status of technical losses in the distribution system to help prepare medium and long term investment plans to reduce them, along with other technical and commercial issues.

- Management Program – AEGEA’s operations are currently managed in a decentralized manner at the concession level focusing on applicable regulatory obligations. These programs focus on the operational aspects of the water and wastewater treatment concessions, including operation and maintenance of the water and wastewater treatment facilities, technical and commercial water loss reduction programs in the water distribution systems, and the programmed expansion of water and wastewater service coverage in the area of concession. Environmental, social, and health and safety aspects are managed following applicable regulations and technical norms which are, over time, captured in operational manuals of the aforementioned activities. In the two concessions currently under operation, management of environmental and occupational health and safety aspects is based on operational plans and procedures that cover such diverse aspects as treatment processes to achieve drinking water quality and wastewater treatment objectives; source water protection; water distribution system loss prevention; and occupational health and safety (i.e. training, health monitoring, etc) as required by Brazilian law.

Going forward, and in order to ensure that a minimum, robust, approach to environmental, health, safety and social (EHSS) performance is achieved across its growing number of subsidiaries, AEGEA will develop a sustainability policy and will further develop and implement a formal environmental, health, safety and social management program based on the principles outlined in the policy. The management program will define minimum corporate operational procedures applicable to assets acquired through purchases of existing concessions or through award of concession contracts. These program will cover such aspects as diagnostic audits of acquired assets and operations covering human resources; environmental (including licensing); and occupational health and safety (OHS). The management program will be supported by standard EHSS procedures applicable to construction and operational aspects of water and wastewater operations. These management procedures shall be consistent with local regulatory requirements and applicable IFC Performance Standards.

AEGEA’s initial approach during project design is to avoid the need for physical or economic displacement although this decision is ultimately made by the public entity issuing the concession. AEGEA will develop and implement, where applicable, a Land Acquisition and Involuntary Resettlement framework guideline consistent with IFC’s PS5 requirements. This guideline will apply to general land acquisition processes and specifically for cases where judicial expropriation is allowed under the concession agreements.

Within the above described existing set of E&S management system policies and practices, AEGEA will adopt IFC’s Performance Standards as part of legal and other requirements that apply to future operations. AEGEA’s environmental, health, safety and social management program will reflect the adoption of these standards with specific procedures designed to cover each of environmental and social requirements. AEGEA will amend the internal procedure covering the identification of applicable legal requirements to make specific reference to IFC’s Performance Standards.

- Organization – Responsibility for the management of environmental, health and safety (EHS) aspects is assigned at the operational level, generally to an environmental coordinator who reports to the manager of operations of the concession. OHS matters are also managed by coordinators who report to human resource department of the respective concession. In some cases, environmental and OHS management is further delegated to OHS technicians or more typically through assignment of these responsibilities to operational personnel. Implementation of sustainability activities (described in more detail below under “Community Engagement”) is supported also at the local level, typically through an external communications coordinator with the support of operational managers.

Going forward, the Sponsor will hire a qualified professional who will be responsible for developing and overseeing the implementation of the aforementioned corporate EHSS policy and management program across all of its water and wastewater concession businesses. Corporate organizational capacity will address environmental and occupational health and safety (OHS) technical areas.

- Training – AEGEA’s individual operations currently plan and implement training programs according to the national regulatory requirements. These include aspects such as the identification of workplace hazards; the use of personal protective equipment and collective protection equipment; electrical safety; work in confined spaces; fall protection; and other aspects defined by the individual operations. In one of the operations visited as part of this appraisal, training activities include a program developed by the concession in collaboration with a private university covering aspects such as environmental legislation; wastewater treatment plant operation; electrical safety; ecosystems and biodiversity; and water resources management.

Going forward, AEGEA will review the scope of the training programs within the context of a corporate EHSS management strategy to ensure that each of the operations annually plan and implement training programs consistent with the environmental, health, safety, and social risks of the business activities consistently across all operations. For the water and sanitation business this will include applicable occupational health and safety issues in addition to those listed above such as excavation safety and hazardous materials management, among others.
The corporate management program will also address minimum training requirements for subcontractors to ensure they also have formal training and experience appropriate for the assigned functions prior to initiation of construction or operations and maintenance activities which may be conducted by subcontractors.

- Monitoring – AEGEA’s concessions are required to monitor a series of environmental, health and safety performance indicators in order comply with Brazilian regulations. Monitoring requirements include such aspects as raw and treated drinking water quality, treated wastewater quality, drinking water distribution system losses, and waste generation. This information is compiled by the individual concessions. Water and sanitation operations in the current concessions are also independently monitored by the state environmental regulators who collect and analyze raw and treated drinking water and wastewater samples to verify compliance with environmental licensing requirements. The company also monitors energy consumption and water losses in the water distributions systems.

Brazilian Regulatory Norms require companies to conduct occupational health and safety (OHS) monitoring for aspects such as workplace exposures to noise, elevated temperature and chemical agents. AEGEA’s operations apply government required joint health and safety committees (CIPA) with representatives from the workers and management who supervise and report on health and safety issues encountered during work. CIPA committees are also responsible for investigating and analyzing occupational accidents, incidents, and health issues.

The Company also tracks trends in infant mortality rates across concession areas to demonstrate how improvements in expansion of water and sewerage service are favorably linked to improvements in public health.

- Reporting – The information gathered by each concession is consolidated in a number of different management reports based on individual concessions’ monitoring programs and regulatory requirements. These management reports prepared by each department (for example human resources, external communications, operation, etc) are consolidated into internal summaries for presentation to operations and holding level management. Environmental monitoring data (drinking water and treated wastewater) is compiled into reports at the facility level for submittal to the respective state regulatory agencies in compliance with operating license requirements. Individual operations are required to report on drinking water quality and treated effluent testing results to municipal and state agencies.

Drinking water distribution companies in Brazil are also required to disclose the results of water quality testing to their customers normally including this information in the water bills and in the companies’ websites as shown below:
http://www.aguasguariroba.com.br/sagua/index.php
http://www.prolagos.com.br/publico/atendimento/qualidade_agua.php

Brazilian regulations also require companies to report on occupational accidents and incidents resulting in lost time from work.

Going forward the Company will prepare and publicly disclose Corporate monitoring reports of its operations on the company’s external website against the selected environmental, health, safety and social performance indicators.

PS2: Labor and Working Conditions

- Human Resource Policy and Management – The Company’s concession in the City of Campo Grande has a total of 580 direct employees, 150 of which are dedicated to operational activities within the water and sanitation business, 260 of which are assigned to commercial functions (including approximately 150 dedicated to loss prevention in the water business) and the remainder which are dedicated to corporate management and administrative functions (i.e. accounting, legal, etc). The Company currently communicates employee rights and responsibilities through human resource policies, employment contracts, employee handbooks and collective agreements each developed at the local concession level. AEGEA also has a Code of Ethics which principally covers aspects of company policy regarding relations between employees and various parties in order to avoid conflicts of interest.

-Non-discrimination and Equal Opportunity - Strong support for equal opportunity and non-discrimination in employment is demonstrated through formal programs organized by AEGEA such as one targeting the employment of persons with disabilities, and diversity targets reflected in Company metrics on gender, race, age, and level of education. AEGEA is also committed to maximize local economic development impact by maximizing the hiring of local labor throughout its operations.

- Worker’s Organizations – IFC found no evidence that AEGEA restricts freedom of association of its employees. In Brazil, workers normally affiliate with local or regional labor unions organized to cover their specific industry activities. Operational employees in the assets currently held in the State of Mato Grosso do Sul have the option to be affiliated to the “Sindicato dos Trabalhadores nas Indústrias da Purificação e Distribuição de Água e em Serviços de Esgoto MS”. The collective bargaining agreement between the company and the union is available at: http://www.sindaguams.org.br/ag2011.html. Employees in the operations in the State of Rio de Janeiro have the option of being affiliated with the “Sindicato dos Trabalhadores nas Indústrias da Purificação e Distribuição de Água e em Serviços de Esgoto de Niterói” (http://stipdaenit.org.br/).

Both of these labor unions specifically focus on water and sanitation industries. The Company and the union have signed a Collective Bargaining Agreements which covers key labor aspects such as: salaries; working hours; contracting and layoffs; labor stability; benefits, rights and responsibilities; occupational health and safety; workers organization and union relations; and contributions to the union.

-Retrenchment – The Company is projecting that the number of direct employees will continue to grow over the next few years primarily due to growth in the concession business. Some of the concession businesses will experience periods of growth and decline, primarily in the use of temporary contracted labor for projected construction activities. However, as part of its concession business, the Company typically encounters the need to reduce the number of employees as the concession is transferred from government to private entities. In these situations, responsibility for the retrenchment process is retained by the municipal governments and is typically phased in over a period two years after AEGEA takes over a concession, time during which the public employees remain as part of the Company while continuing to receive compensation from the government entity. In some cases, at the end of a pre-established time period, the municipalities exercise the option to provide early retirement or lay off some workers. In future concessions, if AEGEA becomes responsible for retrenchment activities it will conduct them in a manner which complies with IFC requirements including development of retrenchment plans which are based on the principle of non-discrimination, reflecting consultation with employees, their organizations and, where appropriate, the government.

- Grievance Mechanism – The Company actively encourages employees and managers to openly discuss and resolve conflicts. Employees are currently able to lodge complaints internally through the Human Resources department and Company management, although there are no written procedures or formal mechanisms, and externally through either the labor unions or the public Labor Rights system (Justica de Trabalho).

AEGEA will create and implement a formal internal grievance process which allows grievances by individuals or groups (including anonymous complaints) to be presented verbally or in writing, without the risk of reprisals and according to other requirements consistent with IFC’s Performance Standard 2. The grievance procedure will be made available to all existing and new employees as part of its Human Resource Policy or other document.

- Protecting the Work Force – The Company complies with legal minimum age of work requirements by requesting valid documentation of age in the employee contracting process.

- Occupational Health and Safety –To prevent workplace accidents and promote the health of its employees, AEGEA implements Brazilian Regulatory Norms (NR) applicable to its operations including those related to the identification and monitoring of chemical and physical hazards through a Workplace Envi ronmental Risk Prevention Program or PPRA (“Programa de Prevenção de Riscos Ambientais”), use of personal protective equipment (PPE), emergency preparedness and response, and medical surveillance (PCMSO or “Programa de Controle Médico de Saúde Ocupacional”). The legally required safety committees (CIPA) are responsible for conducting preventive OHS inspections and helping ensure that the OHS training activities are completed. Some of the concessions use standardized OHS audit reports and standardized accident investigation forms.

Going forward, and as part of the development of a corporate EHSS management program, the Company will develop a more robust OHS auditing and accident investigation procedure. Preventive OHS audits should systematically focus on all applicable workplace risks while accident investigation methods should be designed to identify the root causes of all accidents.

PS3: Pollution Prevention and Abatement

-Effluents - Effluent discharges from wastewater treatment plants operated by AEGEA generally meet the standards specified in permits issued by State and Federal environmental authorities in Brazil. Brazilian wastewater discharge standards are consistent with IFC’s PS3 requirements as the permits limit discharges of indicator parameters at levels that take into account receiving water use, as well as its assimilative capacity. As part of the internal review of new and existing plant operations, AEGEA will identify any instances of non-compliance with applicable wastewater discharge standards and prepare a time-bound corrective action plan to come into regulatory compliance.

AEGEA’s Campo Grande concession applies secondary anaerobic treatment followed by chlorination to its sanitary effluent while the Prolagos concession in the State of Rio de Janeiro applies activated sludge aerobic treatment followed by ultra-violet disinfection or chlorination, depending on the specific wastewater treatment plant. In Prolagos there is a combined sewer and storm drainage system which was historically inherited by the Company as the storm drainage network was illegally used by property developers to connect and discharge sewerage. This drainage system was converted into the main sewage collector in order to quickly intercept the combined sewage and drainage that was directed into surface water bodies. There are about 3 annual rainfall events which generate combined storm and sewage overflow events.
However, all new investments are required to separate storm water from sewer system.

Due to its touristic and ecological importance, the region where the Prolagos concession operates has two public entities which help steer the identification of priorities in investments in water and sanitation. A Water Basin Committee evaluates the needed investments and a Consortium of Municipalities helps executes the decisions of the Water Basin Committee. There is a small tax on water users which reverts to the consortium to help with costs of implementation which are mainly funded by state government (i.e. dredging of rivers) and private sector concessions (i.e. construction and operation of water and wastewater treatment plants). More information on the work of the Water Basin Committee is available at: http://www.lagossaojoao.org.br/.

Municipal wastewater systems with industrial users/discharges can pose performance problems for wastewater treatment plants where these dischargers aren’t properly managed. Although municipalities may regulate the quality and strength of industrial wastewaters discharged to their sewerage systems, the absence of effective monitoring and enforcement can cause treatment process upsets which may lead to breach of effluent discharge standards. Brazilian law defines industrial wastewater pre-treatment standards for industrial facilities discharging into municipal sewer systems.

-Solid Waste - The principal waste generated by AEGEA’s activities are wastewater and water treatment plant sludge. Consistent with Brazilian regulations, the Company periodically tests wastewater and water treatment plant sludge to establish its correct waste classification and disposal method. According to the regulatory classification, after processing in centrifuges, sludge from operating facilities located in Campo Grande and the Cabo Frio region is currently disposed by third parties in properly permitted sanitary landfills. Sludge from water treatment facilities is typically disposed of in a drying basin and effluent from drying basin is discharged into wastewater network for subsequent treatment in the concessions wastewater treatment system.

-Hazardous Materials Safety - Facilities using and storing hazardous chemicals, particularly gaseous chlorine at drinking water treatment plants, pose risks associated with accidental releases. AEGEA subsidiaries adequately handle these materials to minimize the impact of such a release. Appropriate emergency prevention and control plans are in place, and include provision of appropriate response equipment and materials, and a detailed set of procedures to be followed to minimize the harm of any potential accident. The Aguas de Guariroba concession produces its own chlorine at an on-site facility and is therefore not required to transport it or to store it in large quantities. The plant is staffed with qualified professionals and equipped with safety systems to warn operators and to automatically shot down facilities in the event of an accidental release. The Prolagos operation purchases these materials only from licensed providers and follows the regulatory procedures for notification of local fire departments ahead of transport and delivery events.

-Water supply - The drinking water treatment plants and distribution systems AEGEA operates produce finished water that meets applicable host country standards. In certain systems there have been occasional exceedance of aesthetic parameters, such as iron (with the associated color and turbidity), due, in part, to corrosion of distribution piping. These minor violations are limited, and have no adverse impact on public health.

Company operations involved in drinking water treatment and distribution continually monitor source water quality and quantity according to applicable legal requirements. At-risk intake areas may be subject to source water protection programs in collaboration with local or regional regulatory agencies. Water company operators are required to notify environmental regulatory agencies if a problem, such as the presence of hazardous constituents, is identified during source water quality monitoring activities. Water withdrawals take into account actual and projected capacity of the river systems used as water sources.

-Water Conservation - Water use efficiency is also a key aspect of the business strategy of the Company who is investing heavily in macro and micro-metering, nighttime leak detection, hydraulic simulation, fraud prevention, pressure management, and replacement of old trunk and distribution networks. The Company also devotes significant financial and administrative resources in quality assurance and control of client water meters. The information gathered through the metering network is used, together with a targeted leak detection program, to identify technical and financial losses.

-Energy Conservation - Energy efficiency is a significant part of the business strategy of the company based on studies of efficiency and cost in pumping and treatment activities in both the water and wastewater business. Energy conservation strategies include increase in treated potable water storage capacity to reduce the need for pumping and treatment during peak electricity rate periods and installation of groundwater wells and water treatment plants in proximity to consumers to reduce the need for pumping over long distances, where feasible. Optimization of energy management is maximized through the use of optimization software together with a well developed metering system.

In its water and sanitary sewerage concessions, the communities potentially affected by the Company’s operations are also its costumers and AEGEA’s subsidiaries devote a proportion of their operating efforts toward effective communications with the communities they serve and where company infrastructure is located. The principal means of communication is through widely publicized call centers designed to attend costumer service related issues and, less frequently, reporting of emergencies. The call centers track the speed and effectiveness in the resolution of complaints with a target toward continuous improvement in client and community satisfaction. Subsidiary communication and marketing departments provide avenues of information disclosure and dialog with the rest of the general public. These departments also develop and implement social programs with organizations such as schools and other social institutions.

Prior to construction activities associated with expansion or modification of acquired concessions, AEGEA’s subsidiaries conduct community awareness campaigns to inform residents about the nature and extent of the works that may take place in their respective neighborhoods and, where necessary, consulting with residents and business owners who may be temporarily negatively affected by the construction works. The dissemination of information includes targeted letters to home and business owners prior to start of construction as well as radio and newspaper campaigns. These activities are considered adequate forms of public consultation in situations where projects are exempt from a more extensive environmental licensing process as described previously in this summary report.

Community grievances are managed according to the rules of public concessions laws which require private concession companies to have a formal, well publicized mechanism to receive complaints from customers and the public. In the case of the Sponsor’s current concessions this mechanism includes a first and second option to help resolve public grievances. Contact information is well publicized in customer’s monthly bills, company vehicles, and the following company web sites:
http://www.aguasguariroba.com.br/ouvidoria
http://www.prolagos.com.br/publico/atendimento/ouvidoria.php

The Company further prepares and distributes educational materials to the public it serves covering such aspects as the proper cleaning of household water storage tanks to prevent contamination of drinking water as well as information on issues of frequent concern such as taste and appearance of water drinking water; and proper use of the sewage system to avoid blockage from accumulation of improperly handled oily waste. The Company’s corporate social responsibility program includes numerous activities in education (open doors programs for local schools), health (home water storage tank cleaning), environment (clean rivers and clean lakes campaigns; environmental education for school children; separation of storm water from sewage networks; etc), and recreation / human development (construction of recreational facilities and child care centers adjacent to company infrastructure). Information on these and other programs is available at the concessions’ websites:
http://www.aguasguariroba.com.br/
http://www.prolagos.com.br/

Hamilton Amadeo, Chief Executive Officer
AEGEA Saneamento
Av. Brigadeiro Faria Lima, 1744/8º andar
01451-910 - Jardim Paulistano
São Paulo – SP – Brazil
Phone: +5511-3818-8156
mailto:hamilton.amadeo@aegea.com.br