India - Private Infrastructure Finance (IL&FS) Project : environmental and social report (Vol. 1 of 6)

J w sr I INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED ENVIRONMENTAL AND SOCLAL REPORT VOLUME 1: EXECUTIVE SUtMMARY November 1995 j  LIST OF ACRONYMS ADR - Alternative Dispute Resolution BOO - Build Own Operate BOOT - Build Own Operate Transfer BOT - Build Operate Transfer CBO - Community Based Organisation CC - Corporate Consultant CFD - Contractual Framework Documentation COD - Committee of Directors CPCB - Central Pollution Control Board CRZ - Coastal Regulation Zone DFIBR - Detailed Feasibility and Investrnent Banking Report DPI - Detailed Process of Implementation EA - Enviromnental Assessnent EAP - Enviromnental Assessment Process EAR - Enviromnental Assessment Report ED - Executive Director EIA - Environental Impact Assessrnent lEMP - Envirownental Mitigation Plan ESMG - Environmental and Social Managemelt Group ESR - Environmental and Social Report FRI - Forest Research Institute GOI - Government of India IL&FS - Infrastructure Leasing and Financial Services Limited IPDP - Indigenous People Development Plan ISR - Initial Screening Report ITRC - Indian Toxicology Research Centre LA - Local Authority LAA - Land Acquisition Assessment MA - Multilateral Agencies MoEF - Ministry of Environment and Forests MOU - Memorandum of Understanding NEERI - National Environment Engineering Research Institute NGO - Non Governmental Organisation O&M - Operation & Maintenance OD - Operational Directive PAP - Project Affected Person PRA - Participatory Rural Appraisal R&R - Resettlement and Rehabilitation RAP - Rehabilitation Action Plan REP - Risk Evaluation Process RMG - Risk Management Group i  RMP - Risk Mitigation Plan SA - Social Assessment SAMP - Social Assessment and Management Plan SAP - Social Assessmcnt Process SAR - Social Assessment Report SDP - Staff Development Plan SIA - Social Impact Assessment SPCB - Slate Pollution Control Board SPV - Special Purpose Vehicle TOR - Terms of Reference UMTS - Urban Mass Transit System WB - World Bank WUI - Wildlife Institute of India ii  EXECUTIVE SUMMARY (1) Infrastructure Leasing and Financial Services Limited (IL&FS) is pioneering and promoting innovative approaches to infiastucture development in India. It is developing a pipeline of commercially viable projects which includes urban by-passes, mass transit systems, water and sanitation infrstructure and integrated area development. The projects are to be developed as Build-Own-Operate-Transfer (BOOT) or Build-Operate- Transfer (BOT) schemes. (2) The envircnmental and social framework for IL&FS has been designed to be consistent, inter alia, with the BOOT/BOT framework. The ESR outlines the various policies, procedures and assessments that will enable IL&FS as a financial intermediary to ensure that a project is developed in consonance with the ESR and is adequately protected from attendant risks. (3) Thus, the purpose and aim of the ESR is to provide the Institution an overall framework to guide it in the identification, assessment and management of cnvironmental and social concerns at the organisational and at the project level. (4) The ESR has been prepared by IL&FS with the assistance of Consultants - Development Altematives - specialised in the field of environment and social issues. The process of preparing this report has included desk research on the legal and institutional framework, analysis of priority issues in the infrastructure sector, consistency checks with operational directives of the World Bank and other multilateral agencies. There have also been a series of discussions within and outside IL&FS for the preparation of the Report (5) The ESR has been formally approved by the Board of Directors of IL&FS. ENlVIRONMENTAL AND SOCIAL STATEMENT OF IL&FS (6) The Environmental and Social Statement of the Institution commits each project to three cardinal principles: (a) Enhance the quality of life and environnment in and around the project. location. (b) Prevent adverse environmental and social situations. (c) Mitigate possible adverse environmental and social impacts. While enhancement is the first priority, incorporation of prevention and mitigation measures will cnsure minimal adverse impacts. I  (7) IL&FS is intemalising this Environmental and Social statement into its business operations through detailed operational procedures including systems for continuous performance evaluation and self regulation. The highlights of an Annual Env.ronmental and Social Audit will be made public alongwith the Annual Balance Sheet. (8) The legal and constitutional setting provides the context in which the environment and social statement and operational procedures of IL&FS is framed. Fundamental national commitmnents are enshrined in the Constitution of India, while the Acts, Notifications, policies, rules and other documents issued by Central and State Governments provide operational details. India also has obligations on environmental and social issues through its participation in intemational conventions and treaties. (9) A number of specific regulatory instruments for environmental protection have been developed by both Central and State Governments. Many of these have a bearing on IL&FS infastructure projects. (India's contributions to and learnings from negotiations for international treaties have also helped immensely in sharpening the focus of the regulatory instruments currently in place). Most States and Central Government have either Ministries or departments of environment and forests as agencies dealing with enviromnmtal issues. (10) With its basic comnnitment to address environmental concerns in infiatructure projects, IL&FS has attempted to capture the essence of the regulatory framework in India and the experience of the World Bank as embodied in its Operational Directives. It has incorporated the strengths of both the World Bank operational directives and the Indian legislation and policies in the ESR. ( 11) Compared to the more specific legal instruments on environmental issues, the legislations, notifications, rules and policies on social issues are relatively less definitive. While Constitutional provisions provide several guarantees to project-affected persons, international agreements on social and cultural issues have only limited application. (12) Given its concem for social issues associated with infrastructure projects, IL&FS has developed its policy and operational procedures based on the legal and policy framework in India and the operational directives of the World Bank. (13) In order to provide a benchmark for the discussion of possible entitlements in the R&R process, the ESR provides a menu of typical impacts that project affected households and individuals may experience. Against these impacts, the corresponding beneficiary designation and the possible entitlement options have been developed based on the operational directives of the World Bank. (14) The actual combination of types of impact, beneficiaries and entitlement options will depend on the specificities of a sub-project itself. lt would, thus, be up to the Special 2  Purpose Vehicle (SPV) and its sub-project consultants team to develop a coherent rehabilitation action plan. IL&FS will remain responsible for appraising it within the proposed operational fiamework. (15) While infrastructure projects deliver major benefits, the construction and operation of each type of project involves certain activities that could have adverse environmental and social impacts. (16) Presently, IL&FS focus in the infrastructure sector includes the following: (a) Integrated Area Development (b) WVater Supply and Sanitation (c) Transportation (d) Power (17) Specific enviromnental impacts during the construction and operation phase of the project will be identified, assessed and a suitable mitigation plan evolved. The exercise begins with the identification of issues in the alternative project sites. The degree and magnitude of these issues are captured in the subsequent investigations (EA and SA process). Resolution of these issues are incorporated in the project design. (18) Infrastructure projects are also often confronted with a range of socio-economic issues. The socio-economic impacts will vary considerably depending on the specifics of the project location and the resettlement area. IL&FS is committed to: (a) Fulfilling the legitimate needs of the project affected groups, and (b) Adopting a transparent process acceptable to the concerned stakeholders. (19) The salient social issues related to infiastructure projects include: (a) Involuntary Resettlement. (b) Protection of Marginalised and Vulnerable Groups. (c) Public Consultation and Consensus Building. (20) While IL&FS will aim to avoid involuntary resettlement, it may become inevitable in some of the projects. In such cases, the attempt will be to atleast restore, if not improve, the standard of living of the affected persons. IL&FS will ensure proper valuation of land and assets, on entitlement policy for each category of impact, minimisation of cumbersome procedures and a well developed compensation package. (21) In some of the infrastructure projects, there may be specific issues relating to marginalised and vulnerable groups like the economically and socially disadvantaged; the elderly; women and children; the physically handicapped; and indigenous people. As a general principle, IL&FS will aim at enhancing their opportunities. 3  (22) In each project, IL&FS will attempt to establish an effective local mechanism sensitive to socio-economic issues and capable of co-ordinating implementation of. various project components including RAP and IPDP. Non-Government Organisations (NGOs) and Community Based Organisations (CBOs) will play a critical role in this process which will also redress the grievances of the affectcd groups. flR:ATIQliALPRQCDURES (23) The environmental and social assessment process will dovetail with the IL&FS project cycle. It is envisaged that at each stage of the project cycle, environmental and social assessment issues would be addressed concurrently. Based on the foregoing principles, a summary of the IL&FS project cycle is provided in the table below: L,&ISI ROJILRCT YOYSIMMARY I MILESTONE RESPONSIBILlTY PRODUCT Screening IL&'SISFVISponsor' Inita Screening Reot _________ _______I_G overnm ent Scoping . Il&FSlSPV/Sponsor/ - oMemorindunofidtndiig Government (MoU) - Finalisation of Channels of Consultation Finalisation of Temis of IL&PFSSPVJSponsor/ Terms of Rcference (ToR) for Reference for project Consultant appointnent of consulants preparation studies Appontment of consultants .1L&FS. SPV/Sponsor Consultants Appointed Project Prearaton SPVlSponsodCoDrnt Draft final documentation prepared ____________.____ * according to agred fornats Initial Project Evaluation IL&FS/ Consultant, - Initial Project Evaluation SPV/Sponsor Report - Agreements on project *__ documentation Selction of Opertor IL&FS&SPVtConsultant - Award of Recommendation Project Financial Close IL&MS SPVYSponsor, - Final Project Evaluation -Government, Opeator. . Report Merchant Banker - Signing of Agreements - Finalisation of project finance consortium Project Monitoring and Audit IL&FS/SPVILcnders - Compliance Report - -__________________ - Annual Audit (24) Based on the IL&FS project cycle, IL&FS has developed an Environmental & Social Assessment process. IL&FS is committed to ensure that each project will rigorously follow a detailed Environment and Social Assessment Process as summarised in the table below: 4  EANA&EROCERSUMMARY MIESTONE i RESPONSIBILITY I PRODUCT X I Environmnental/Social Scre g IL:8tFS, SPV/Sponsor, IL&FS Environmental screcning and iwith SPV/Sponsor i social screening as part of 3I, Ptoject Inidal Screening ' . Report - Decision to proceed or otherwise Envi omnenal/SocinlScoprg ---*- --- --- ScPp/ and coveage of EAR/SAR FinabLsation of Terms of UL&FS,SPWLANConsultant I Tcnns of Reference (ToR) for Reference for EA- and SA t appointment of consultant studies AIppomntment of consultants IL&FS /SPV/Sponsor Consuitants Appointed _ EA/SA Study I SPV/Sponsor through, Draft EARSGAR including: Consultant EMP -RAP IPDP Implementing Monitoring Plan I- nsitional Rcsponsibility Framework - Risk Allocation Framework Review of EAR/SAR IL&FSPViSponsor - Clcarance by Govcrnment a agencies Concurrence by MA Agrcanent on EAR/SAR actions Translation of Agrcemcnts into IL&FS/SPWOpcratorI Concession Agreemncat Lcgal nstments Contractor, SPV & Government Shareholders Agreement Construction Agreement O&M Agremcnt l____.____.____ -_ Lcnders Agreem nt Projcct Monitoring nL&FS/SPV/Lenders Periodic Monitoring Reports Annual EnvironmnwLtal and Corporatc Consultant Environment and social audit report Social Audit (25) The Environmental Assessment Process (EAP) will identify likely environmental impacts and evolve relevant mitigation measures. While the project will attempt to enhance environmental quality, it will at a minimum prevent or set in place appropriate mitigation measures. The EAP will be undertaken by a multi-disciplinary team of consultants with support from NGOs, CBOs, Government Agencies and due processes of consultation. (26) IL&FS is committed to ensure that the legitimate needs of the project affected groups are fulfilled through a transparent process acceptable to the concemed stakeholders. The Social Assessment Process (SAP) adopted will restore the quality of life, if not improve it, when compared to the situation before the infrastructurc project. The SAP will be 5  -~~~~~~~~~~~~~~~~~~ undertaken by a composite team drawn from among specialists like anthropologists, sociologists, community development experts; and others from non-governmental organizations (NGOs), community based organizations (CBOs), project affected persons and appropriate public institutions. ENVERONMMANTA AN1) SOCIAT, RISK MANAGEMEN (27) IL&FS shall establish structures that will serve to minimise many of the normal infrstructure project risks. Nevertieless, IL&FS will remain exposed to several other risks,especially relatingtoenviromnental andsocialconcems. (28) Major environment and social problems could adversely affect project operations, eamings and hence loan servicing obligations. Consequently IL&FS will place significant emphasis on a rigorous Enviromnent and Social Risk Assessment, Analysis and Management at the project level. (29) In order to effectively manage the environmental and social risks attendant to infrastructure projects, IL&FS will incorporate a risk evaluation process at each stage of the EA1SA process. (30) In essence, the risk evaluation process shall enable the Institution to develop appropriate mechanisms to manage and monitor risks on an on-going basis. Within IL&FS the risk evaluation process shall be implemented by the project team and the Risk Management Group. (31) The risk evaluation process shall thus comprise of the following sequence of steps. * Risk Identification. a Risk Assessmen.. * Allocation of Risks. * Risk Management including mitigation measuses. (32) After the appropriate risk management systems are set in place, IL&FS will ensure the appropriate allocation of risk and the associated liabilities, through a contractual framework and, if feasible, insurance coverage. 6  (33) Each project will have a responsibility firamework outlining the extent of risk and associated liability to be shared between cach of the project stakeholders. The instruments through which this will be implemented, include: (a) Risks/responsibilities of Govemment : Concession Agreement (b) Risks/responsibilities of SPV Concession Agreement, Lenders' Agreement, O&M Agreement, Construction Agreement (c) Risks/responsibilities to be borne by Shareholders' agreement Shareholders. (d) Risks/responsibilities to be borne O&M Contract by Operator. (e) Risks/responsibilities to be borne Construction Agreement by Contractor. ORGAfSATIONAL U BPPORT (34) IL&FS shall establish an organisational structure with the requisite expertise to ficilitate compliance with the ESR. It will inculcate and develop the requisite skills within the histitution, and access complementary and specialised skills through the appointnent of External Consultants on an assignment basis. (35) The table below summarises the responsibility for each task within IL&FS. This allocation framework assigns departmental responsibilities with a view to integrating the environment and social assessment process with the overall project cycle. The process flow in terms of preparation, review and authorisation is geared towards ensuring that sufficient independent cross-checks exist within the system to ensure effective process and management control. 7  . |[MILESTOIEE | PREPARATION | REVIEW APPROVAL Screening Poject team Executive Director Committee Of ESMG* (Infrasuuce) Directors Corporate Consultant * Finalisation of TOR Consultants ESMG Executive consistency check Director (Infrasucture) Appointment of consultant Project team ESMG Review of EBASA Project tearn Credit Committee of ESMG Legul Directors Corporate Consultant RMG ED (g!inLstucbffe) Translation of agreements Legal ESMG ED into Legal bntrments Project Team (Infrastructue) RMG ._______________ Credit Monitoring Project team ESMG Committee of ___________ ____~ Corporte Consultants _ Directors Environmental and Social r Independent Consultants Committee of Board of Audit __ _ _ _ _Directo Directors * ESMG Environmental and Social Management Group ** Corporate Consultant IL&FS Corporate Consultant for Environmental and Social Issues (36) At the Corporate level, IL&FS will (a) Create an Environmental and Social Management Group (ESMG) as a part of the Projects Department. (b) Appoint a Corporate Consultant for Environmental and Social issues. (c) Clearly delineate functions/across concemed Departments and provide the necessary training required to ensure that the requisite levels of skills and awareness are developed within each of the concemed Departrnents. 8  (37) At the project level, IL&FS will ensure that the SPV/Project Sponsor appoints Project Consultants to undertake assignments on environmental and social issues in conformity with its business practices. Project Consultants for social issues will be selected from among non-govemmental organisations (NGOs), community based organisations (CBOs) or public agencies STAFF DEELfPMENT ELAN (38) In order to position the organisation to achieve the objec ives as set in the ESR, IL&FS will implement a staff development plan. The Staff Development Plan (SDP) is oriented to facilitate the implementation of the environmental and social assessment process as an intrinsic part of the project cycle (39) A number of Departnents in IL&FS would be routinely involved in the preparation, review and approval of the various outputs emanating from the environmental and social assessment process. At the present juncture, IL&FS staff have not been fornally trained with respect to environmental and social issues. Thus, all concerned staff will initially undergo an orientation programme on the ESR and its application to project specific environmental and social issues. Subsequently, each Department will undergo training specific to their responsibilities in the EA/SA process (40) Training modules will include a combination of workshops, seminars, site visits and interactions with project authorities. The responsibility for implementing the SDP in IL&FS will vest with the Personnel Department (41) As a financial intermediary, IL&FS will access funding from a variety of lenders including multilateral agencies such as the World Bank (42) In order to ensure that the projects are in conformity with World Bank's OD requirements and business practices, IL&FS shall submit the following documents for the review of the Bank. The table belowprovides the institutional interface matrix INTERFACE MARIX EAJSA MILESTONE | OUTPUT TO BE SUBMITTED TO THE I ~~WORLD BANK Screening . !nitial screening report Finalisation of tenas of reference for EA and SA Terms of reference studies Review of EA and SA studics and mitigation: Dmft EAR and SAR according to agrccd formats plans Translation oragremcnts into instrumcnis =cndcrs Agreemcnt alongwith oth_r Agreemcnts Monitoring * Compliancireport Environmcnalw and Social Audit Audil complianec rnport 9  . (43) It is envisaged that World Bank concurrence to the output generated at each milestone will be obtained prior to progressing to the next stage. However, when the capacity of IL&FS is in place, it is expected that World Bank and other multilateral agency concurrence will be required only for the EAR and SAP Summary Reports and the agreements, prior to approving finances for sub-projects. This capacity building is expected to take two years. 10