PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources is considered not relevant for this investment because although The 40-stations STP network of the greenfield BOT project is located in an area considered to be natural habitat, the pads of the STPs are small and would be constructed within existing modified habitat and it is likely that positive improvements in water quality within the habitats for aquatic fauna and flora will occur due to the projects. The projects being considered for IFC financing are not expected to impact indigenous people; hence PS7 on Indigenous Peoples if not considered relevant. PS8 Cultural Heritage is also not considered relevant since no project sites are located in areas of known historical or cultural significance.

Penyao has instituted a robust corporate E&S management system (ESMS) which provides oversight of environmental, social, health and safety (ESHS) issues in each of its three business divisions, namely water treatment division, pre-fabrication manufacturing division and solid waste management division. IFC’s appraisal of both Phase I and Phase II focused on ESMS of the water treatment division of the Company, which ensures the operations comply with all applicable laws and regulations and IFC’s Performance Standards. The ESMS includes a series of documented manuals (covering construction, operations and safety), procedures, work instructions, and reference documents which, when combined with the findings of the project-specific environmental impact assessments, comprise a program of mitigation and performance improvement measures and actions necessary to effectively manage the E&S risks and impacts of its projects. For new projects, assessments are periodically aggregated and summarized for senior management review.  Through management meetings and written documents, project and site managers periodically report to senior management and relevant government authorities on environmental, health and safety performance, as well as accidents and incidents on existing projects. The Company undertakes technical due diligence of existing operational WWTPs before acquiring O&M contracts from local government to assess potential technical and E&S risks.

Each business divisions have separate environmental. Health and safety (EHS) department with defined roles and responsibilities. During project development consisting of site selection, pre-feasibility, design, planning, and construction phases, a separate project engineering team from corporate manages the project including E&S aspects. Post construction and commissioning, the plant is handed over to subsidiary Company management and the head of each WWTP is responsible for EHS management and performance during operational phase.

Performance of the Company’s existing ESMS is largely consistent with IFC PS requirements in providing adequate oversight, comprehensive risk assessment, document management programs, monitoring, reporting and training. The Company has complied with IFC’s E&S requirements for Phase I and has satisfactorily implemented the agreed environmental and social action plan (ESAP) items except the item requirement on land audit and development of screen procedures as part of the ESMS program. The Company will conduct a comprehensive audit of Penyao projects (existing and pipeline) financed/to be financed by IFC to determine compliance with IFC PS5 Land Acquisition and Involuntary Resettlement and develop a remedial action plan in consultation with IFC to achieve compliance as needed (ESAP#1). The findings of the land audit will be used to develop a set of practicable screening procedures include fully documenting the land acquisition process of each relevant future site.

The Phase II of the IFC’s investment involve the development and operation of two greenfield WWT projects, Chengnan WWTP and Yuanlin STPs network.  The site selection is the primary responsibility of respective local governments and the Company provides technical support during the site selection process. The site selection for Chengnan project is yet to be finalized as government is evaluating alternate sites and going through multistakeholder consultation process.

The site selection for majority of 40 small STPs in Yuanlin County proposed in 21 community settlements is almost complete with last few sites still undergoing multistakeholder consultation process and alternative site analysis. Local governments initially planned about 53 small STPs in Yuanlin County which has been reduced to 40 STPs after taking inputs from multistakeholder consultation process that raised neighborhood environmental quality concerns on ambient noise and odor issues. Yuanlin County has reduced the number of STPs without reducing either the population or geographical coverage or volume of wastewater envisaged from original 53 STPs. The 132 km long main pipeline network to collect and transport sewage to nearest STP units is planned along the public roads to reduce the land or right of way requirements.

Consistent with the PRC laws and requirements, Environmental Impact Assessments (EIAs) for the Yuanlin STPs network are prepared by the Company and approved by the government. If the chosen site is rejected based on a consultation process and a new site beyond 5km radius of rejected site is identified, then Company prepares a fresh EIA report for the new site. Recommendations from the impact assessment process and requirements from applicable regulatory framework have been incorporated into the concession agreements and have been used at project definition and planning stage, and as may be applicable through the life of the project. The aforementioned EIA report complies with PRC requirements and is consistent with IFC PS1 requirements on environmental aspects, but it does not have assess social risks and impacts assessment describing the site selection, identification process of social impact, and mitigation measures in line with IFC’s PS1 requirements. An EIA study for Chengnan is currently underway. As part of IFC Phase II investment, the Company will supplement the ongoing EIA Study of Chengnan WWTP project with a focused social risk and impact assessment study and will supplement the EIA study report for Yuanlin STPs network to cover social aspects as needed (ESAP#2) with relevant and available information/studies and conducted additional social assessment activities when required.

The Company monitors EHS performance for each project according to the procedures established in their existing management system and periodically reports to the Board. As per local regulatory requirements larger WWTPs mandatorily require installation of real-time, continuous, online monitoring systems which have been complied and the plant performance data is uploaded to the local regulator. Besides, the Company also undertakes independent 3rd party monitoring of large WWTP performance as per permit conditions. In addition to standard procedures, project-specific procedures are developed to comply with provisions contained in E&S impact assessments and concession agreements with local governments. If monitoring results indicate nonconformance with standards or deviations from established benchmarks, appropriate corrective or preventive actions are initiated. A similar approach is adopted for unplanned events, such as accidents, where the events are investigated, and corrective or preventive actions initiated to prevent recurrence.

The Company has a HR policy on working conditions, terms of employment, and wages and benefits that complies with local and PRC regulatory requirements. Through the ESAP for IFC’s Phase I investment, the Company enhanced its HR policy to ensure consistency with IFC Performance Standard 2 on labor (nondiscrimination and no child/forced labor), payment of wages/overtime, working and living conditions for any labor employed by the Company, either directly or through sub-contractors. HR information is provided in the form of an employee handbook at the time of induction.

The Company’s HR department is responsible to supervise the implementation of the Company’s HR policy and procedures and ensuring they applied consistently to all direct employees across all its business lines and (subsidiary) project companies, and subcontractors. The Company’s department of HR ensures that all employees are adequately trained to perform their work safely. Training of staff is done on a routine basis at each subsidiary in compliance with local workplace regulations. The HR department is responsible for recruitment at each respective subsidiary and ensure that all employees are adequately trained to perform their work safely. Supervision or monitor to confirm if standards are met and any reportable incidents are reported and follow up action taken when required. Training, monitoring and reporting framework is consistent with PRC requirements and IFC requirements.

The Company employs a total of about 1300 people directly, among which about 750 are in the water treatment business division. Employees assigned to take on project responsibilities when needed. At the current stage as all projects under Phase II of investment are either being developed or constructed, 8 people have been assigned to coordinate project development and manage the project construction activities. During O&M phase, larger WWTPs will employ at average about 30 staff per plant while the Yuanlin County STPs network will have a small team of O&M staff managing the fully automated STPs from a common control center. Yuanlin County STPs network units will be largely unmanned as the small team will undertake routine O&M work such as sludge clearances, chemical loading, housekeeping, periodic and breakdown maintenance works etc. in a cyclical manner.

The minimum employment age at the Company is 20 years. The Company ensures that child labor or forced labor is not employed directly or by subcontractors through verification of relevant documents. Working hours on site can vary by nature of activity and phase of project, with most labor-intensive phases being at the construction phase during which there are continuous operations.  Construction activity is largely subcontracted for which unskilled labor is procured locally. Penyao has updated EPC contract management including EHS and labor requirement for on EPC, and project manager will direct oversight the compliance. A workplace grievance mechanism was developed as part of the ESAP for IFC’s Phase I investment to address issues/concerns or complaints from all workers, including construction, third party, casual/ daily workers.

A worker’s union was established in the water treatment division on March 11, 2021, in compliance with national law of workers’ unions.  Under the law, the union formed to represent workers collectively and any issues or grievances from workers can be presented to the management through the union. At the time of IFC’s appraisal for Phase II, there is no outstanding issue or grievance reported or identified.

Reduction of operational workforce is anticipated when the transfer of three operational WWTPs (Chengbei, Fenghuanshan, Taichang) to Penyao for O&M to improve operation efficiency. Moving forward, the Company will prepare a retrenchment plan in line with PS2 based on consultations with workers and will ensure that the separation package is properly and adequately made as per national labor laws (ESAP#3).

Occupational health and safety (OHS) of employees at the Company is managed by the HR and Administration departments. There is a plan for accident prevention and worker safety consistent with local regulatory requirements. All employees in the Company have to undergo a training program at induction and subsequently regarding worker health and safety relevant to their job activity. Facilities are audited yearly by regulatory agencies to monitor compliance with labor regulations. The Company has been in compliance with regulatory requirements, including undertaking independent OHS performance assessment at larger WWTP sites and has recorded no significant lost time incidents or fatalities in its operational history. As part of the ESAP for IFC’s Phase I investment, the Company developed a plan to achieve internationally acceptable monitoring and reporting standards for OHS for its employees and sub-contractors. IFC’s review of the Company’s monitoring report indicated that such plan has not been fully implemented.  Moving forward, the Company will submit OHS safety record with the template developed in the implementation plan to IFC quarterly for 12 months (ESAP#4).

Construction work of greenfield facilities is managed by the Company’s engineering team using construction contractors and labor agencies and apply Penyao’s HR policy and procedures including working condition, minimum wage, non-discrimination and no forced/child labor, working hours and OHS. The Company uses pre-fabricated components and package treatment units in the development of the STPs network Yuanlin County which shortened construction time and minimized land footprint. For smaller projects, contractors rent neighborhood community residences for setting up their workers accommodation for a short period. For larger WWTP projects, a separate worker accommodation camp is installed based on the Company specifications made part of contractual obligation. Company’s worker accommodation specifications meet IFC’s requirements on workers accommodation.

Risks associated with workplace environmental quality is limited. The Company routinely maintains air conditioning equipment’s installed in the plant offices, control rooms and other such buildings and undertakes periodic mosquito control measures. Each plant maintains first-aid kits and has arrangements with nearest local hospital centers that are accessible within 30 minutes for handling medical emergencies. The Company has implemented all COVID-related measures as required by the local government regulations.

The Company maintains resource consumption data for electricity, wastewater treatment chemicals, disinfection chemicals, diesel oil at every plant and assess resource consumption performance in comparison with other WWTPs in the Country. The Company ascertains that its performance on resource consumption is the lowest among the WWTP operators in China.

Penyao uses contemporary treatment technology for municipal wastewater and sewage treatment in the projects under consideration for IFC financing under Phase II. The technologies are globally recognized and proven to provide reasonable assurance of meeting effluent discharge standards when operated with adequate training. The technology used for wastewater treatment includes screening, primary sedimentation, secondary biological treatment with nutrient removal and secondary sedimentation, and optional UV disinfection. Effluent discharged from wastewater treatment facilities operated by the Company are designed to comply with China: GB 18918-2002 Discharge Standards of Pollutants for Municipal Wastewater Treatment Plant that is recognized by IFC EHS Guidelines for water and sanitation sector as one of the international standards for compliance. Discharge standards are established by the government and vary by project location and receiving water quality standards. As discussed under PS 1, following the national compulsory requirements, all large WWTPs (including those under the Phase I) the Company- operates have installed real time, online monitoring system for continuous monitoring of effluent quality and the data is uploaded to local regulator. Such online monitoring system and reporting protocols will be developed for all large WWTPs under the Phase II for operation. For Yuanlin 40-STPs network, every plant performance is supervised and monitored by local EPB regulators using the continuous effluent quality monitoring data and through periodic plant visits. Local regulators impose high monetary fine in case of non-compliance to discharge standards and permit conditions.

Penyao uses prefabricated modular treatment units for the small STPs proposed in Yuanlin County, which is tailored for wastewater treatment in rural areas. Those prefabrication modules proved to have consistent quality, and ease of operation.

The large WWTP sites are located well away from local communities to mitigate environmental quality concerns such as odor and ambient noise levels. Some STPS are located very close to household because limited option in the mountainous area. Given that the package plant design, the entire STP units are kept inside a closed container to avoid nuisances such as odor and noise. Even the air blowers are kept in enclosed containers with high-efficiency noise control. Potential issues associated with odor and noise during operations of the plants will need to be monitored and mitigated (ESAP#5). 

The Company will operate the treatment plants in a manner that is consistent with good international industry practice, and protective of human health and receiving environment at all times. The Company will monitor performance on an ongoing basis to ensure compliance with PRC requirements and applicable WBG sector specific EHS Guidelines; should monitoring show significant deviation from the metrics established by applicable guidelines and agreed parameters, the Company will make necessary changes to remedy any non-compliance.

The treatment plants do not handle or store hazardous materials such as chorine gas and instead generate chlorine for disinfection on-site using electrolysis of sodium chloride, which reduces the risks to communities. The Company uses permitted and regulated wastewater treatment chemicals and stores them in a designated place with smoke detectors and closed-circuit television camera for remote monitoring. The CCTV data is uploaded to local regulator as part of compliance to chemical handling permits.

Significant quantities of process residuals/sludge are generated as part of routine wastewater treatment operations. Sludge generated cannot be composted and used as biofertilizer as per local regulations. As per terms of the concession agreements, the Company is required to deliver sludge at acceptable water content with no additional requirements on chemical or microbiological characteristics. All wastewater treatment plants operated by the Company are equipped with sludge dewatering facilities. Dewatered sludge is treated in Penyao’s sludge processing facilities prior to reuse in the case of non-hazardous municipal sludge or disposed according to agreement with the local government in designated sanitary landfills.

Engineering controls and staff training are provided to mitigate risks to community health and safety associated with the Company's operations.  As discussed under PS3, Penyao avoids use and storage of hazardous chemicals that might have potential community safety risk during the transportation and storage. Effluent discharge is being permitted, supervised and monitored by local EPB regulators The risks and impacts associated with ecosystem services in the treated effluent receiving ecosystem and community exposure to diseases is assessed to be low.

The Company is required to have emergency prevention, control and response plans which specify responsibilities, ensures appropriate response equipment and materials are in place, and detail a set of procedures to be followed to minimize the harm of any potential accident.  The Company will also add a community engagement component that addresses appropriate behavior and safety measures to be implemented in the event of an unplanned release beyond the plant boundaries due to either irregular plant operations or an accident at the facility (refer to ESAP #9).

The Company employs adequately trained and unarmed security guards at all its facilities. Provision of security services is following PRC regulations and are meant to ensure site safety, and limit access to authorized persons only.