PS5: Land acquisition and involuntary resettlement is not applicable given the nature of the land required for the expansion (location adjacent to the existing Shemu refinery operation and within a demarcated industrial zone); likewise, PS7 Indigenous Peoples and PS8 Cultural Heritage are not found withing the client’ s operational footprint.

This is a Category B project based on IFC's 2012 Policy on Environment and Social Sustainability. Based on information reviewed by IFC, the proposed project will have limited adverse environmental and social (E&S) impacts that are few, site specific, largely reversible, and readily addressed through existing mitigation measures and Good International Industry Practice (GIIP). Shemu is committed to manage its oil refinery and logistical assets in compliance with applicable Ethiopia’s legal and regulatory requirements and IFC’s Performance Standards (PSs) and aligned with GIIP as per applicable and relevant parts of the WBG EHS Guidelines (General and Vegetable Oil Production and Processing) and its own corporate policies. Key E&S risks and issues associated with the project includes (i) adequate E&S assessment of its operations in line with applicable Ethiopian legal requirements and IFC PSs and use of that assessment to develop an ESMS commensurate to the E&S risks and impacts of such operation; (ii)  E&S systems and staffing to manage the construction and operations of new/existing infrastructure in line with IFC’s PSs; (iii) assurance of fair and safe working conditions in compliance with IFC PSs (including on GBV) and those requirements within Ethiopian labor regulations both during the construction and operation phase; (iv) management of air emissions, noise, effluents, solid/hazardous waste; (v) food safety, transport, and security risks and management practices; and (vi) gradual increase of CPO sourcing meeting PS2/PS6 supply chain requirements, including certified (RSPO) CPO.

Policy. Shemu has a corporate environment policy (2019). The policy’s objectives are to provide a quality processing service in a manner that ensures a safe and healthy workplace for its employees while minimizing the potential impact of the company on the environment. Performance-based requirements are for Shemu to comply with applicable Ethiopian law and regulation, integrate the consideration of environmental risks and impacts into decision making and activities and communicate environmental commitments to its clients, customers and the general public. It further aspires to support, train, educate and inform its employees about environmental and occupational health issues that may affect their work, and as far as is possible, purchase products and services that do the least damage to the environment. Shemu does not currently have any corporate policies related to the broader issues of transport, security, community health and safety and stakeholder engagement. Based on this review, Shemu will update its existing environmental policy to include references to transport, security and community health and safety and stakeholder engagement and to commit meeting IFC Performance Standards. This action is part of a series of actions which Shemu will carry out to develop and implement a PS-compliant E&S Management System (ESMS) under ESAP#1.

Identification of Risks and Impacts. As part of the company’s compliance to the Ethiopian EIA regulatory requirements, an Environmental and Social Impact Assessment (ESIA) was carried out in 2011 in conjunction with the development of the Soap and Detergent Manufacturing plant. The ESIA report identified the major risks and impacts associated with the construction and operation phase of the refinery. Those associated with the plant operations include the discharge of wastewater containing high loads of organic matter and air emissions from the use of steam boilers were highlighted. The ESIA for the oil refinery was undertaken in 2017. Both assessments are disclosed together with this ESRS.

For the proposed storage tanks, such activity does not require an ESIA as per Ethiopian EIA regulations. To ensure E&S risks and impacts associated with the construction/operation of such storage tanks are fully identified and assessed and used to develop appropriate E&S management and mitigation measures plans to avoid, minimize or mitigate risks and impacts (and to include such in an Environmental and Social Management Plan (ESMP) to be integrated into the company’s ESMS), Shemu will conduct a risk and impact assessment( including a climate risk assessment) for the new project and an EHS Audit for the existing operations aligned with IFC PS requirements and the relevant and applicable part of the WBG EHS Guidelines (General and Vegetable Oil Production and Processing) for its current operations and those to be developed as part of this project (ESAP#2).

Management Programs. The company has limited EHS management programs (in both number and scope) to address risks and impacts associated with the operations. The company has established several SOPs for its different operations within the oil processing process. These include procedures for oil fortification, product labelling, filling and capping of oil containers, general inspection of the workplace and entry requirements for the laboratory. These SOPs are focused on operational steps, i.e., describing the steps required to be carried out for each process and include quality considerations (such as prohibition on wearing jewelry in the production department and the need to have products correctly labelled). These SOPs are, however, limited in their scope, and do not cover all risks and impacts of Shemu’s operations; as such, and following the EHS risk assessment of all operations (ref. ESAP#2 above), the manual of SOPs will be expanded in both number and scope to be commensurate to the E&S risks and impacts of the company’s operations. They will be integrated into, and managed by, the ESMS to be developed as per ESAP#1 above. In 2020, the company embarked onto a Cleaner Production (CP) program along with the Ethiopian Chemical Institute for integrating resource efficiency approach to reduce waste production. With an initial target to achieve a waste reduction of 1.5%, Shemu reported to achieve a 1.8% reduction. Beyond that program, there has been no other coordinated EHS management program. The company understands the need to develop EHS management plans for Shemu operations which are aligned to GIIP as per relevant and applicable WBG EHS Guidelines, and this action has been included as part of the development of the PS-compliant ESMS under ESAP#1. At the time of this appraisal, Shemu reported that it was working to certify its refinery against ISO 14001:2015 standard (Environmental Management System) and ISO 22000:2018 standard (Food Safety Management System).  The company expected to receive certification to ISO 22000 by the end of first quarter of 2024 and to ISO 14001 by the end of June 2024. Once successfully achieved, the company will work to ensure such elements as required by international standards and those required by the PS-compliant ESMS work together to drive E&S management and performance.

Organizational Capacity and Competency. The company has an occupational health and safety (OHS) and Environmental Protection Department which forms part of the overall quality assurance and control (QA/QC) division. This department, located at the CPO refinery, consists of the QA and OHS Manager, and the plant manager who reports to the General Manager. Matters related to E&S management in each section of the plants is the responsibility of the Head of Unit supported by a supervisor. Most of the Head of units in the plants are chemists or have a chemical engineering background. To strengthen its E&S capacity, Shemu will recruit an E&S manager at corporate level. In addition, an E&S officer and an OHS officer will be recruited to oversee the day-to day operations of the oil refinery and soap manufacturing plant. The company will also analyze the capacity of the HR team and will develop an E&S and HR plan to resource E&S management and implement the ESAP, in compliance with IFC PSs during implementation of the proposed project (ESAP#3).

The company reported that staff in each unit are regularly trained on existing SOPs. The current induction program is used to provide new staff with information with respect to E&S policies and procedures in place at Shemu, including safety program/policy & work rules, responsibilities, safety education/training, accident reporting, personal protective equipment, tool & equipment use, material handling and emergency procedures. As part of the ESMS under ESAP#1, Shemu’ EHS/HR team will develop a structured EHS/HR training curriculum which any staff is required to follow, relative to their role and relevant risk and potential impacts. Further training will be provided to current staff based on the results of the EHS audits, ESMP and EHS SOPs developed under ESAP#1. As set forth in ESAP#4, Shemu will develop and implement corporate and plant-level EHS training plan. The training will be provided to Shemu’s permanent and temporary personnel, contractors and contracted workers, and service providers.

Emergency Preparedness and Response. Whereas the location of the refinery and soap manufacturing plant are within a designated industrial area, i.e., 7 km away from residential areas, it is adjacent to other industrial facilities. At the time of this appraisal, Shemu had not established an emergency preparedness and response system that was deemed sufficient to respond to accidental and emergency situations associated with its activities. The company will therefore develop and implement an emergency preparedness plan and system that will include the identification of areas where accidents and emergency situations (including involving third parties, communities and climate change risks) may occur (including operations under company responsibilities with respect to the receipt of raw materials at the port in Djibouti, transport of such to the processing plant, processing activities themselves, etc.), response procedures, provision of equipment and resources, designation of responsibilities, communication, and will include periodic training to ensure effective response (ref. ESAP#1). The company will use its ESMS to ensure that emergency preparedness and response activities are periodically reviewed and revised, as necessary, to reflect changing conditions/operations.

Monitoring and Reporting. In addition to the SOPs described above, Shemu has developed checklists which are used to assess the general conditions within the premises of the factory, such as if there is any obstruction in the aisle, whether there are any oil spills on the floor, whether wastes are properly segregated, if the presence of rodents is detected (requiring the use of pest control), the need for distribution and use of Personal Protective Equipment (PPE), among others. These checklists are filled on weekly and monthly basis and they are used as inputs to weekly and monthly management meetings during which results are discussed and corrective action plans developed as necessary.

The quality of the effluent from the wastewater treatment plant is monitored monthly. The boiler feed water treatment plant quality is monitored daily. However, several E&S aspects are not monitored and reported at present. For example,  spills, fire or other incidents, amount and type of training provided, near misses and safety violations, energy consumption, water use, solid and hazardous waste management and GHG emissions are not monitored and reported.

The company will therefore review and update its overall monitoring and oversight of operational areas to ensure they cover the key E&S aspects that will be identified and assessed as part of the ESMS under ESAP#1. To drive efficiencies, they will utilize a set of Key Performance Indicators (KPIs) and will benchmark all results against company’s objectives and GIIPs as the ones established with WBG/IFC General and Sector-specific EHS Guidelines. These will be reported to management. Where non-compliances are identified against regulatory limits, national standards or relevant and applicable WBG EHS Guidelines values, the company will develop and implement time-bound actions to achieve compliance, supporting those actions with required human and financial resources. Regular review of levels of performance with regards to such limits/benchmarks will be undertaken by senior management as part of their oversight and stewardship of PS-compliant ESMS (ESAP#1).

Supply chain risk assessment and management. The main raw material in Shemu’s operation is CPO. The company processes 720 tons of CPO per day of which 71.25% of the raw material is converted to refined edible oil and 28.75% is used in soap, detergent and vegetable shortening manufacturing. The company will develop a responsible sourcing policy and develop a supply chain management system, including supply chain risk assessment, as described in PS6 section with respect to CPO sourcing.

As of September 2023, Shemu had 859 direct permanent employees. In term of gender breakdown, there are 71% male and 29% female workers. The annual staff turnover is around 0.27%.

Human Resources Policies and Procedures. Shemu has two Human Resources (HR) manuals in place, one for management and one for non-management employees. Shemu has a full time HR manager overseeing HR related activities and will strengthen the function as per ESAP#3. Direct employees are hired on either a permanent contract, a fixed term renewable contract or an apprentice contract. The fixed term contract duration varies between 3 to 11 months, is renewable and is dependent on the task to be completed. The manuals detail the required qualification and experience for each job title/position, which is also used to advertise for vacant positions. Upon commencement of employment, all employees are provided with a written contract which contains position title, salary and other benefits and include details regarding place of work, duration of contract, duties and responsibilities, covenants, and reference to applicable national labor laws of Ethiopia.

Working Conditions and Terms of Employment. The HR manuals contain procedures for recruitment and on-boarding, disciplinary action, performance management and job descriptions. Normal working hours are from Monday to Saturday amounting to 44 hours per week; plant workers work on one of up to 3 shifts. A shift is typically 8 hours in duration and 2 or 3 shifts – depending on the production targets – can be accommodated. The packaging production unit exceptionally works 2 shifts per day of 12 hours each. When this is required, provision of longer rest days is made. Longer shifts are limited to a duration of 2 months; beyond that, the company moves to 3 shifts to reduce working hours. Working longer hours (e.g., overtime) is voluntary according to Shemu’s HR manager and is compensated according to the rates (multipliers of normal hourly rates) stipulated by national labor law. The specific working hours and overtime are not currently included in the HR manual for non-management workers and will be included as part of the manual update (ESAP#5). Employees are entitled to 16 annual leave days in the first year of service, increasing at a rate of 1 leave day beyond 16 for every additional year of service. Additionally, employees are entitled to sick leave and 3 paid leave days to attend family events. Female employees who are expecting are granted a period of 30 consecutive days of leave with pay preceding the presumed date of birth and a period of 60 consecutive days of leave after giving birth. In terms of salary scale, the lowest salary starts at ETB 2,500 per month.

Workers’ Organization. Employees are legally allowed to join worker’s unions as per the labor law in force in Ethiopia; however, there is no explicit statement to that effect in the HR manual; this will be corrected as part of the update under ESAP#5.

Non-Discrimination and Equal Opportunity. Ethiopia has ratified eight of the fundamental International Labor Organization (ILO) conventions and the United Nations Convention on the Rights of the Child as referenced in this Performance Standard. The HR manual includes reference to provision of equal opportunities stating that the company shall not discriminate any applicants based on race, sex, religion, political affiliation, etc. With regards to hiring, candidates are interviewed, shortlisted, and selected according to published job requirements, adhering to its policy for non-discrimination of employees in any form based on race, religion, sex, political affiliation, including provision of remuneration and benefits. Sexual harassment is listed as one of the major offences in the HR manuals, and if it occurs, it may entail termination of employment contract without notice.

Retrenchment. The company has not carried out any retrenchment in recent years nor intends to do so in the foreseeable future considering its expansion plan. If it were to be required, however, the HR manual explicitly states that any retrenchment will follow labor law and/or the requirements of any collective bargaining that may be in place at that time; the manual will be updated to align to the relevant PS2 provisions under the proposed project (ESAP#5).

Worker’s Grievance Mechanism and Disciplinary Measures. Grievance investigation and management is listed as one of the duties of the HR manager, however, there is no mention of a dedicated grievance mechanism procedure in the general worker’s HR manual; the management HR manual mentions the steps to appeal a disciplinary action, thus limiting this practice to management staff only. Under the action relevant to the update of the HR Manual, Shemu will develop and implement a grievance mechanism, including (a) enhanced disclosure of the mechanism and training to direct workers (permanent and temporary) and third-party workers. In addition, managers and supervisors will be trained to ensure effective implementation; (b) development of guidelines for resolution and response, including appropriate methods to handle grievances or concerns related to sexual harassment and gender-based violence; (c) periodic monitoring of the grievances with defined KPIs. Awareness of this procedure will continuously take place during staff induction session; (d) training to staff and grievance handling committee for consistent implementation of the grievance mechanism; (e) specific training to handle grievances or concerns related to sexual harassment and gender-based violence (ESAP#5).

Protecting the Workforce. The minimum age for recruitment at Shemu is 18 years old; however, there is no explicit reference in the manuals to the prohibition on child labor. Likewise, there is no explicit reference regarding prohibition of forced labor. To address those shortcomings identified above with regards to HR management (explicit reference to prohibition of child labor and forced labor; working hours and calculation of overtime rates for non-management workers; explicit reference regarding right to associate under Ethiopian law; updating and publicizing the employee grievance mechanism; and, review of disciplinary practices), the company will review and update its HR Manual, ensuring alignment of such with both national law and regulation and PS2 requirements. Following the update of such, the company will inform on and present the amendments to HR manuals to all employees, regardless of employment status (ESAP#5).

Workers engaged by third parties. The company does not hire any workers through third parties. Security personnel is hired directly by the company (see PS4 section below).

Occupational Health and Safety. Shemu has a safety manual which includes a safety policy. The safety manual lists safety rules, such as reporting of injuries, no use of drugs and alcohol in the work premises, stipulates which personal protective equipment (PPE) is to be worn for which tasks, describes general housekeeping activities to be undertaken, general caution notices for use of powered equipment, chemicals and forklift. The manual also lists the responsibilities of the safety committee, which is to identify workplace hazards, enforce safety rules, measure safety performance, develop and monitor safety programs, although the composition of the safety committee and frequency at which the committee meets were not provided to IFC. All employees are enrolled in a workmen’s compensation insurance to cover the expenses associated with workplace accidents and occupational disease. The company provides training on fire safety, existing SOPs and current practices around workplace safety.

Shemu’s management reported to IFC that the plant is equipped with fire and electrical systems as per the local fire regulation and standards. A Life and Fire safety audit will be included in the fully fledged OHS risk assessment 0(ref. ESAP#6).

Shemu’s management also confirmed that they implemented necessary measures to protect its employees from noise such as using barriers and screens to block the direct path of sound, and designing the workflow to keep noisy machinery out of areas where workers are stationed, in addition to the use of hearing protection in noisy areas.

Internal audits of OHS management practices are currently carried out within departments. In addition, accidents and incidents are recorded, and the injury lost time is tracked. In 2020, Shemu recorded one employee fatality due to electrocution while carrying out a non-routine maintenance activity. OHS lagging performance indicators in terms of incident rates are above the industry benchmarks. The company will engage a qualified third party that will carry out a full OHS risk assessment of Shemu’s entire operations, including routine and non-routine activities and will develop an OHS management system. The OHS management system will include workplace environment and occupational exposure monitoring plan (ESAP#6). As part of the assessment, the company will identify the need for additional OHS resources to support OHS management and performance. The existing safety manual and policy will be reviewed and updated based on the results of the assessment (ESAP#7). The OHS management system will be integral part of the ESMS under ESAP#1.

Asbestos was reported to IFC as being present in the factory, having been used for steam pipe insulation and within galvanized iron sheet insulation in roofing and walls. Shemu will commission and implement, with the support of a specialized third party, an asbestos management plan to map presence of asbestos, define and implement mitigations per GIIP and avoid exposure of friable asbestos material to employees (ESAP#8).

Shemu CPO refinery and soap manufacturing operations primarily involve the refining of CPO into consumer products. As described above, the process involves degumming the crude oil with soft acids, bleaching with diatomaceous earth, distillation at 200oC and fractionation to produce a range of edible oils and soaps/detergents. In addition to the CPO, bleaching earth (around 30kg per ton of CPO), citric acid (around 9kg per ton of CPO), vitamin A & D3 are used in the manufacturing process. Soap manufacturing also requires the use of caustic soda. The company also have a polyethylene terephthalate (PET) bottle manufacturing facility, which is used to produce the packing material for its main products in the same location.

Resource Efficiency. The company have installed energy saving measures such as solar lighting within the plant and use of solar energy to pre-heat water used for steam generation, thus reducing its energy consumption. As part of the PS-compliant ESMS (ESAP#1), consumption of resource use (water and energy) will be monitored, including assessment of resource efficiencies, and KPIs will be established under the E&S monitoring procedures.

Greenhouse Gases. Current electricity consumption amounts to 56,000 kWh per day and fuel usage (diesel and gasoline) of 864 m3 annually. These two inputs account for 2,187 tons of CO2-e (scope 1) and 924 tons CO2-e (scope 2).

Water Consumption. Process water is obtained from licensed boreholes located within the premises of the plant. The water is tested onsite daily for hardness, pH, turbidity, odor and color. The company indicated that 34,590 m3 are used annually (i.e., less than 100 m3/day) at current production rates. The process generates 1,956,840 liters of wastewater per month (or approximately 68% of raw water used). This process water is entirely reused in production, after having been analyzed for suitability for such purpose. Potable water is obtained from the national water company and additionally bottled water is provided for drinking purposes. Given the 4x increase in production capacity for the refinery that will be supported by this investment, the company will assess its process water use, to demonstrate that its increase in consumption will not adversely affect other water users (ESAP#9).

Solid and hazardous wastes. Both soap manufacturing and oil refining produces negligible amount of process waste, as any ‘waste’ is considered an input into another part of the production process. Shemu indicated that hazardous wastes generated from its manufacturing process are limited and comprised of used and/or expired chemicals and oils and lubricants (such as are generated during equipment maintenance). These are disposed of through dedicated and licensed government facilities. As part of the update of the EHS SOPs under the PS-compliant ESMS (ESAP#1), Shemu will review, assess and document its hazardous material and waste management practices (collection, appropriate separation/storage on-site, use of licensed waste management companies, maintenance of manifests/records of proper disposal) and will ensure specific training to those responsible for such operations (ref. ESAP#1). 

Air emissions. Currently Shemu limits its monitoring of point source air emissions from its diesel boilers to carbon dioxide. As part of the PS-compliant ESMS (ESAP#1), they will institute regular monitoring and use that to demonstrate compliance to applicable regulation and to the relevant and applicable WBG EHS guideline values. There are no receptors potentially affected by noise.

Pesticides. Shemu does not make use of pesticides. For pest control activities, ultrasonic pest repellant and insect traps are used.

Road traffic safety. Shemu relies on transport service providers for the transportation of CPO from Djibouti to Dire Dawa, however the ISO tank belong to Shemu. For the year 2022, 546 trucks were hired for these services. Distribution of the product is carried out at the factory itself, where customers come to collect their orders. Currently, Shemu do not have a transport management program in place. Thus, as part of the ESMS (ESAP#1), Shemu will develop a transport management program which will include screening, reviewing, monitoring and training of transport providers, identification of key risks associated with the transportation, and relevant procedures relevant to the use of service providers, in addition to ensuring the access to a grievance mechanism to the communities along such transportation routes (see Stakeholder Engagement and integration of the community grievance mechanism under ESAP#1).

Community Health and Safety. The plant is located in the Dire Dawa industrial zone. As such, the facility does not have any residential communities in its immediate surroundings. The expansion in operations will also be within the industrial zone perimeter. As noted above with regards to emergency planning and preparedness (and included in ESAP#3) and transport management program, however, the company will review all its operations to ensure it has taken into consideration any possible interactions with communities through any project activities, such as odor, noise, and transportation of raw and finished materials.

Food Safety Management System. Shemu is currently working on a food safety management system (ISO 22000:2018). The company expects to obtain the certification in the first quarter of 2024.

Security Personnel. Shemu has its own security personnel; there are 44 security guards in total who are not armed. These security guards are hired based on having previous military and/or police service experience within the state military institution or/and regional police institution. To meet PS4 requirements, Shemu will assess risks posed by its security arrangements to those within and outside the project site and will prepare a security management plan, including policies and procedures pertaining to the background checks, hiring, rules of conduct, equipping, monitoring and training needs of security personnel to ensure all procedures on the use of such personnel are aligned with PS4 requirements (ESAP#10). The grievance mechanism will allow to receive and address concerns by third parties and community members about the security arrangements and acts of security personnel.

Supply Chain Risk Assessment and Management. Shemu processes CPO into edible oil, soaps, and detergents. The CPO sourcing of the amount of 20,000 MT per annum, is sourced via a supplier based in Djibouti (who is the only supplier equipped with the necessary infrastructure to supply CPO to Shemu), who in turn sources the CPO from its parent company. That parent company obtains CPO from Indonesia and Malaysia.

Both origins are known to be at significant risk of conversion of natural and/or critical habitat associated with the production of palm oil. At present, whereas oil that is produced according to the RSPO Principles and Criteria could be sourced, Shemu does not do so. This is due to the limited management control and influence of the company over its CPO supplier and the constraints associated with a sole available source of CPO via Djibouti. In this context, the RSPO premium that the company would have to pay to obtain mass balance RSPO certified oil cannot be justified by its business model as Shemu is serving the base of the pyramid in Ethiopia. That premium varies according to the market but based on rates in effect at the time of this appraisal, it is understood to total approximately $1M per annum for the current levels of CPO sourcing. At current rates and levels of production, this is expected to equate to 5% of the CPO used by Shemu on an annual basis. Further, Shemu is considering building a peanut processing facility (which will not be part of the proposed investment) to provide its customers with peanut oil, using domestically sourced peanuts. The combination of such domestic sourcing with RSPO mass balance CPO will, once the peanut facility is up and running (estimated to require three years to construct once the decision to do so is made), amount to approximately 30% of raw material inputs; in short, 30% of necessary inputs would not be associated with areas known to be at significant risk of conversion of natural or critical habitats. To promote as much uptake as possible of such raw materials known to not come from areas at significant risk of conversion, IFC will, as part of its supervision of this project, closely review progress of the company on its CPO sourcing abilities and practices, including any change in the supply chain (i.e., the premium for the certified oil gets reduced to an affordable level for Shemu) which may allow an adjustment to the conditions expressed above, and exploring the possibility of a MAS advisory program targeting the promotion of sustainable practices in peanut production in Ethiopia. To further ensure good practices in the supply chain, the company will develop a responsible sourcing policy and develop a supply chain management system that will be aimed at gradually working to purchase RSPO certified COP, (mass balance) sourced via its only available supply chain to the best of its abilities given economic and supply realities and viable alternatives to CPO, and at, prior to any sourcing, assessing areas of origin of raw material against the PS requirements for supply chain risk management  (ESAP#11).

Limited stakeholder engagement activities have included mandatory disclosure of previously developed ESIAs in 2011 and 2017. There are no communities directly affected by the implementation of the proposed project. However, as part of the ESMS to be developed (ESAP #1), the company will comply with the requirements to identify and map its stakeholders and will develop and implement a community grievance mechanism, providing access to local community members and any people affected by company’s operations to register any complaints

Ms. Sitra Ali, Chief Operation Officer, Shemu PLC

Dire Dawa Sub City, Dire Dawa Woreda, Dire Dawa urban Kebele, 01

Tel: +251 94 747 4547; Email: Sitrut@shemugroup.net