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 IFC's 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
PS 4 – Community Health, Safety and Security

The proposed Project comprises manufacturing capacity increases and efficiency-driven process upgrades within
a chemicals manufacturing site that was established in the 1960s. KuAz’ facility is located in a dedicated
industrial park; its neighbors are other chemicals facilities, and there are no residential areas within 2 km of the
site. The capacity increase will be accommodated within KuAz’s existing footprint of emissions to air and water,
and so in those terms the Project has no adverse impact on KuAz’s environmental footprint. Accident modeling
has shown that the most severe accident would be accommodated within the site boundaries and without
endangering the somewhat distant residential communities.

The key environmental and social risks and issues associated with the proposed Project are wastewater effluents
and air emissions, energy efficiency and greenhouse gas emissions and operational safety and emergency
response. The proposed Project has limited marginal E&S risks and impacts, and these are site-specific, and
may be addressed through mitigation measures. This is therefore considered an environmental and social Category B project.

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.

Assessment and Management Systems

Environmental and Social Assessment: In Russia, all significant facility upgrades and expansion

projects undergo mandatory environmental impact assessment studies in accordance with the local

regulations, known as an “OVOS” from the Russian acronym. Each OVOS is disclosed to the public

through the local regulator, and public hearings are held, where local community members and

other interested parties are informed of the Company’s activities, the OVOS conclusions and can

make further information inquiries and voice their concerns about the impacts of company’s

activities and environmental protection measures.



The most advanced (in terms of completion of design and project planning) component of the

proposed Project relates to revisions in the cyclohexanone production processes. The ammonia project has three inter-related stages, a new air separation plant, a new ammonia manufacturing process and new ammonia storage facilities. KuAz and its technical partner are currently in the process of completing the technical design for the processes, following which the OVOS will be prepared and the project subject to public disclosure. KuAz currently expects the OVOS to be completed towards the end of 2014.



The nitric acid project involves purchase, upgrade and reinstallation at KuAz of a process plant that

previously operated in Ukraine. As with the ammonia plant, KuAz is currently finalizing technical

details of the upgrade, and will complete the OVOS and consultation program when these details

are complete.



OVOS summaries for the cyclohexanone, ammonia and nitric acid plants will be sent to IFC when

available.



The tire cord dipping project has minimal potential for adverse E&S impact in the context of KuAz, a

large chemicals complex.



Policy

In 2006 KuAz adopted “The policy in the quality, environment and labor protection and prevention

of occupational diseases” as an overarching sustainability policy. In both environmental protection

and occupational health and safety KuAz’ policies may be summarized as requiring effective

management of these issues through certified management systems, legal compliance, continuous

improvement to enhance safety and reduce environmental impacts, and implementation of resource

efficiency projects. These policies are available for review on KuAz’s website:



In English

http://www.kuazot.ru/eng/about/missy and

http://www.kuazot.ru/eng/about/policy

In Russian

http://www.kuazot.ru/rus/about/missy and

http://www.kuazot.ru/rus/about/politika



Currently KuAz’ environmental footprint is well below the level permitted by the local regulatory

authorities, and the Company’s objective is to continue to reduce its environmental footprint to the

extent that its investment program can be delivered without net increase in emissions.



Management Program

KuAz has an integrated system for management of quality assurance, environmental issues and

occupational he
alth and safety, covering production and sales of ammonia, fertilizers, cyclohexane,

cyclohexanone, caprolactam and by-products, Polyamide 6, industrial yarns, tire cord fabric and

industrial gases. The management system has been certified to be in compliance with the

requirements of ISO 9001:2008, ISO 14001:2004 and OHSAS 18001:2007 by SGS, with the

certifications most recently renewed in June 2012 and valid until June 2015. In the course of IFC’s

due diligence, KuAz provided Actions Plans outlining proposed measures to drive continuous

improvement in its environmental impacts, in some cases addressing non- compliance with World

Bank Group (WBG) Environmental Health and Safety (EHS) Guidelines.





Organizational Capacity

Environmental, Health and Safety matters at KuAz are within the area of accountability of the Chief

Engineer, although day to day management is the responsibility of the Deputy Chief Engineer who

is also Chief of Industrial Safety and Environmental Protection. Two divisions reporting to the

Deputy Chief Engineer manage environmental and safety matters, each with a division manager

and supporting staff. The Engineering Department and R&D Department also consider EHS in their

work, in both day to day engineering support to the production processes and in new project design

and development. The Project Construction Bureau, responsible for engineering project work has a

staff of around 110 engineers. KuAz’ own EHS management capacity is supported through annual

inspection audits undertaken by its management system auditors, the most recent of which was a

week-long review in April 2013.



Emergency Preparedness and Response

Safety is one of the key issues that is always considered in new plant design, and is subject to

review by KuAz’ engineering and construction bureau teams, the OVOS process and local

regulators.



In addition, KuAz has been defined to have 55 dangerous objects on site, of which 6 must be

declared to regulators. For the 55, risk factors arising from human error, routine emissions and

non-routine leaks are assessed and safety measures to mitigate these risks defined. For the six

declared processes, the declaration includes listings of safety-related incidents at similar facilities

worldwide, their causes and the necessary emergency response precautions.



Point source emissions from all industrial processes have been identified and on this basis the

expected routine, off-site impact of manufacturing has been defined. This analysis, which will be

expanded as processes are added, is used to define a sanitary protection zone around the facility

from which residential housing is excluded. KuAz has also modeled emergency situations, the most

severe of which postulates a sudden large scale ammonia leak. This modeling shows that

dangerous concentrations of ammonia will not result in residential areas, the nearest of which is 1.9

km from KuAz’ ammonia facility. Modeling shows a hypothetica
l ammonia plume of 994 m length,

the most severe impact of which would be when the prevailing wind caused the plume to disperse

over KuAz’ own manufacturing site. Dispersion modeling results have been shared with local

emergency responders, and will be updated as new hazardous material processing and storage

facilities are added.



In addition, KuAz has a Civil Defense Department which includes an emergency response brigade

(gas emergency squad). This group has been trained to respond to emergency events, including

large scale leaks of gases: although it has an internal focus, the gas emergency squad could

respond to events outside the site perimeter. As agreed with the authorities, KuAz’ duties in the

event of an emergency are to address the emergency on-site and to inform authorities of the event,

who will then co-ordinate emergency response outside KuAz’ site.



KuAz’ emergency response precautions also include a “captive” fire station within the site.



Monitoring and Review

KuAz has a comprehensive system for monitoring of its environmental and safety-related

performance, driven in part by the need to report regularly to the local regulator and to IFC. The

environmental monitoring regime was determined through a risk assessment, and monthly,

quarterly and annual reports are made to departmental heads within KuAz.

Human Resources (HR) Policy

KuAz currently has around 5,100 employees in Togliatti, of whom 57% are male and and 43% female. Annual staff turnover is currently 7.8%, much of this being caused by retirements. The average age of all employees is 42 years.



KuAz’ HR practices are based on the published principles that KuAz personnel should enjoy more favorable labor and social protection conditions than legally required, that a Collective Bargaining

Agreement will be established and followed, that the workplace shall be safe, salaries shall be

competitive and regular information will be provided to employees about Company performance.



The HR policy addresses recruitment, training, and retention of employees, in adherence to the

Russian Labor Code. New employees receive documentation that defines relevant Company

regulations such as the environmental, work safety and industrial safety policies, the confidentiality

policy, code of conduct, working rules and details on wages, other compensation and benefits and

bonuses. A salary grid has been established for both blue collar and office workers, based upon

qualifications and experience. Most industrial staff are paid on an hourly basis and work on a shift

basis, a 12 hour day shift, 12 hour night shift then two days off. Office and administrative staff

work five eight hour days weekly.



Worker’s Organizations

The Samara region branch of the Russian chemical industry labor union is established in the

company, in accordance with the Russian labor code and close to 100% of the employees are

members of this union. The collective agreement covers, among other areas, salaries, social policy,

employee conduct, working and rest time, vacations, retirement, and special provisions for younger

employees. Labor union representatives are elected at the annual general meeting of the

employees and are hired by the Union. The Union carries out multiple functions including

participation in resolving workers grievances, legal help to its members, conflict resolution,

prioritizing and distributing social funds provided by the company among its workers, HR actions in

respect to hiring, compensation, promotion and retrenchment. The Union represents the workers in

negotiating with the management the term of a Collective Bargaining Agreement, which is a five

year agreement, in which salaries are reviewed annually. The current agreement dates from 2009.



Non-Discrimination and Equal Opportunity

Hiring is conducted in accordance with the Russian Labor Code and there is a policy against

discrimination based on gender, race, age or ethnicity.



Grievance mechanism

KuAz has an internal committee work conditions, which acts as a grievance committee. There are

eight committee members, four each from the Company and the Union, and one committee

member is a lawyer. Employees are able to file a grievance with the secretary of the committee

which meets to discuss grievances according to need. The com
mittee investigates grievances and

informs the complainants and the management about necessary corrective actions (if any) and

monitors their implementation. For informal grievances, employees have open access to their

departmental management, HR representative, or top company’s management as well as to trade

union representatives.



Protecting the Work Force

This is provided though the Labor Code which was updated in 2006. KuAz complies with the

Russian Labor Code and is audited on a regular basis by the Samara State Labor Inspection. OHS

standards on the workplaces are to undergo certification and inspection for adherence to the local

standards of air quality, noise, vibration and radiation pollution is established for all workplaces.



Retrenchment

KuAz has stable employment, and is expanding; there is no expectation of retrenchment.



Occupational Health and Safety

Basic description of the safety management system, emergency scenario modeling and response

planning was discussed earlier in this review. KuAz’ safety division develops safety-related work

instructions for staff based on risk assessments, and delivers safety training. There is an extensive

program of workplace air quality monitoring, and follow-up to all safety-related incidents or

emergency situations. The lost time injury frequency rate is currently and has for several years

been less than international benchmarks for the sector. Two serious accidents in 2011 occurred as

a result of breaches of safety rules, and work is ongoing to address these “human factor” issues.

Resource Efficiency.

The cyclohexanone project will replace four cyclohexane oxidation units with one, much more

energy efficient unit. The new oxidation process will produce relatively more cyclohexanone

(compared with cyclohexanol) than the units to be replaced, which means that the downstream

dehydrogenation process can be reduced from six units to four. The greenhouse gas emissions

savings associated with this process change are estimated at around 90,000 tonnes per annum

CO2 equivalent. In addition, process yield of cyclohexanone will be increased by around 15%.



The new ammonia process is expected to have a specific energy consumption of less than 31

GJ/tonne of ammonia which is within the Best Available Techniques (BAT) range as defined by the

European Union’s Integrated Pollution Prevention and Control (IPPC) Reference Document (BREF)

covering the sector.



The nitric acid plant will be a mono high/high type which promotes higher resource efficiency and

also lower air emissions impact than the existing lower-pressure plant.



KuAz’s operations date from the 1960s, though many have been upgraded in the intervening time.

KuAz pays a high degree of attention to resource efficiency and has a series of projects designed to

enhance energy efficiency of selected production units, although these initiatives are outside the

scope of the Project described in this review summary.



Greenhouse Gas (GHG) Emissions

It is estimated that at the conclusion of the Project the annual GHG emissions from KuAz’ operations

will be around 5,000,000 tonnes per annum CO2 equivalent.



Emissions to Air

The nitric acid plant will be equipped with catalytic destruction of nitrous oxide. Point source

emissions to air are expected to meet local regulations although ammonia emissions are expected to

be very slightly elevated above WBG EHS guideline values. This is not significant in the context of

KuAz’ overall operations.



The ammonia plant has been designed by KuAz’ joint venture partner Linde, and with KuAz’ input

will meet the more demanding of Russian regulation and BAT defined by the relevant IPPC BREF.

While the detailed design has yet to be finalised, emissions to air are expected to meet WBG EHS

guideline values. The ammonia process plant has been specified to include selective catalytic

reduction (SCR) of NOx emissions.



KuAz has a comprehensive system of monitoring of point source air emissions. All are compliant

with local regulatory requirements, although a small number of point sources are not compliant with

WBG EHS Guidelines. These issues have been discussed by IFC and KuAz, and KuAz has developed

and is part way through implementing and Action Plan which is designed to correct these noncompliances.



Effluent Emissions

KuAz’ liquid effluent emissions are compliant with local requirements, although nitrate content has

exceeded WBG EHS Guideline values. The source of the high nitrate levels was ammonium nitrate

prod
uction: KuAz has recently completed the installation of a membrane-based solution to treat

this process effluent, recovering the nitrate to process. At the time of IFC’s visit in early April 2013,

this system was undergoing pre-commissioning testing: it is expected to be operational by summer

2013, at which time effluent quality is expected to comply with WBG EHS Guidelines.



Solid and hazardous wastes:

KuAz generates various industrial solid and hazardous wastes from its production and demolition,

including used catalysts, waste synthetic/mineral oils, construction wastes, metal scraps, etc. KuAz

has a detailed management plan for these solid and hazardous wastes. Used catalysts are sent back

to the manufacturers for regeneration; waste synthetic/mineral oils and other hazardous wastes are

sent to government approved waste management companies for recycle, treatment and disposal;

metal scraps and other raw materials are recycled; construction wastes and other solid wastes are sent for recycle or to the government approved landfill for disposal.

KuAz is located in a large industrial zone, and 1.9 km from the nearest residential area. As was

described in the PS1 section, KuAz has undertaken a number of studies on the off-site impact of

routine and non-routine emissions, and has concluded that even a serious accident is not likely to

have major adverse impact on residential areas. These studies are regularly updated as the

manufacturing processes on the site evolve.



In terms of transport impacts, the major raw materials, benzene and natural gas, are transferred

directly to KuAz site through railroad and pipeline, respectively. The products are also transported

out of the site through the railroad system, by truck or by river.



Security personnel:

KuAz has its own security personnel, which conducts routine ID check at the gates and monitor the

premises. The security personnel are unarmed, but are able to call upon the local police station for

support as required

KuAz’ Information Department leads the Company’s public engagement on environmental and social matters.

In addition to policy declarations (such as the commitment to develop within the existing environmental
envelope), KuAz’ engagement has substantially been on a project-by-project basis, with consultation around the
project OVOS as required by the regulatory authorities. KuAz has in the past dropped proposed projects due to
opposition at public hearings.

The cyclohexanone, ammonia and nitric acid projects will be discussed at public hearings when engineering plans
are fixed, and the OVOS analyses are available for public review.

The Information Department accepts communications, including grievances, from the public on all aspects of
KuAz’ operations. Questions about environmental issues form around 70% of the questions submitted.

In addition, KuAz sponsors local education, from grade school to university level, and offers paid summer internships for high school and university students. Priority in internship opportunities is offered to children of employees.

General information concerning the Company’s environmental, health and safety performance, the OVOS study
for the cyclohexanone project, the OVOS studies for the ammonia and nitric acid projects when they are
available, and this Environmental and Social Review Summary (ESRS) and the associated Environmental and
Social Action Plan (ESAP) all in the Russian language, will be available after July 30, 2013, for review on the
Company’s web-site (http://www.kuazot.ru (the Ecology page) or from:
Mr. Andrey V. Yakimovich
Head of Environmental Safety Department
JSC KuybyshevAzot
Novozavodskaya Ul, 6
445007 Togliatti, Samara Region, Russia
Tel: +7 (8482) 561046
Fax: +7 (8482) 561102
Environmental documents will also be made available at Public Reception of the Togliatti City Administration at
the following addresses:
42, Karla Marksa str.
445000 Togliatti, Samara Region, Russia Russian Federation
or
Office 403
6, Novozavodskaya St.
445007 Togliatti, Samara Region,
Russian Federation

Broad Community Support is not applicable for this project

	Task Description	Anticipated Completion Date
1	Send to IFC the completed OVOS study with an English language summary for the nitric acid plant.	Feb-14
2	Send to IFC the completed OVOS study with an English language summary for the cyclohexanone modernization project.	Dec-14
3	Send to IFC the completed OVOS study with an English language summary for the ammonia project (air liquefaction, ammonia process and ammonia storage facilities.	Dec-14
4	Shop 23: Complete installation of a waste incineration unit with heat recovery and air emissions controls meeting local and WBG EHS guideline values. This new incinerator will replace the existing unit which is obsolete and demonstrates excessive emissions to air of sodium carbonate.	Dec-15
5	Shop 3: Complete the reconstruction of the plant, so as to reduce emissions of ammonia to air from the neutralization scrubber to within WBG EHS Guideline values. Reconstruction should integrate the neutralization units with heat recovery from the neutralization section.	Dec-15
6	Shop 4: Ammonia absorber: Complete the design and installation of enhanced acid-based or other scrubbing of ammonia exhausted from the ammonia absorber, to reduce emissions to WBG EHS Guideline values.	Dec-15
7	Provide semi-annual summaries to IFC of implementation progress with items 3, 4, and 5 until their completion.	October 2013 and twice a year thereafter