A. K. Khan & Co Ltd

Overview of IFC’s scope of review


IFC’s review of this corporate investment consisted of appraising technical, environmental and social information made available by AK Khan & Company Limited (“AKK” or the “Sponsor”), WaterHealth International Inc (“WHI”) and WHI India (“WHIIN”) including: WHIIN Quality, environment, health and safety management system (QEHSMS) manual and standard operating procedures; AKK draft Human Resource (HR) policies; and WHIIN HR Policies. The appraisal team also interviewed AKK’s and WHI/WHIIN’s corporate management professionals. The appraisal also included visits by IFC staff to two potential sites for water centers located in villages Borkomtha and Shorkshak in Comilla district in The Republic of Bangladesh (“Bangladesh”).


Project Description


The AK Khan Group intends to install community water systems (CWS) in The Republic of Bangladesh (“Bangladesh”) as a pilot by constructing and operating up to 50 CWS units (the “Pilot” or the “Project”). Success of the Pilot will lead to scaling up of the business model to several hundred units over the next 4-5 years. A new company called AK Khan WaterHealth Bangladesh Limited (the “Company”) will be incorporated in Bangladesh to offer the proposed services. The Company will be co-founded by AKK and WHI (both together referred to as the “Co-founders”), who will enter into a Shareholders Agreement and other appropriate agreements/arrangements, which will define their respective roles and responsibilities. IFC has been approached for a corporate investment in the Company to part finance the Pilot. The modular CWS will tap raw water from nearby river, ponds or underground resources. The water will be pumped from the pond/well to the CWS through buried HDPE pipes. The water treatment and disinfection will involve filtration through pressure sand filter, activated carbon filter, cartridge filters of 5 and 1 micron size, activated carbon cartridge filter, Ultra Violet (UV) irradiation (for disinfection) and reverse osmosis (RO) purification. Treated water will be stored in stainless steel tanks and dispensed through a tap manifold. Each CWS will consist of equipment assets supplied by the Company, which it will procure from WHIIN. For the Pilot, UV irradiation will be combined with Reverse Osmosis (RO) solution depending on site specific requirements and raw water properties at different locations in Bangladesh. The Company will, depending on the projected demand for a CWS, typically install either 65 kiloliters per day capacity (treated water) or 21 kiloliters per day capacity equipments. These assets will be Company owned, operated and maintained (O&M) to provide potable water to the community. The Company also proposes to deploy light commercial vehicles/vans for delivery of potable water to villages within a radius of 5 to 7 km from each CWS. Typically, the land (typically either about 900 square feet or 1350 square feet) will be purchased or leased by the Company on a willing seller-willing buyer basis. The Company shall place orders for the supply of all materials and equipment required for the first fifty (50) CWS on WHIIN. Further, while the construction of each CWS will be undertaken by the Company, as per the proposed arrangements between the Co-founders (AKK and WHI), WHI will be responsible for ensuring appropriate O&M of each CWS including: deployment of senior WHIIN technical staff for supervision/oversight; for providing technical skills and training to operators; providing maintenance support for equipment; ensuring adherence to quality system; and assurance on product/water quality. While the Company will employ the operators, delivery vehicle/van drivers and other O&M staff, WHI will be actively involved in the selection process. These functions will eventually be transferred to local personnel in accordance with Board of Investment regulations, limiting the extended long term employment of expatriates.


Identified Applicable Performance Standards


While all the Performance Standards are applicable to this corporate investment, IFC’s environmental and social due diligence indicates that this project will have impacts which must be managed in a manner consistent with the following Performance Standards:

PS 1: Social and Environmental Assessment and Management System; and
PS 2: Labor and Working Conditions. In view of the fact that the location and sites of all projects to be developed by the Company are as yet not known and because this investment will be used to support future, but as yet, undefined projects, it is possible that some of the projects to be developed or operations of the Company may result in impacts that may have to be managed also in a manner consistent with IFC Performance Standard 3. Project equipment, plants and infrastructure will meet good industry practices, no armed security guards will be deployed at the CWSs or by the Company at other locations and the Project is not expected result in material community health, safety and security impacts (PS4). Potentially net positive community health impact may be expected on account of the Project with reduced incidence of water borne diseases. Typically, the land (approximately either 900 square feet or 1350 square feet) will be purchased or leased on a willing seller and buyer basis so no involuntary resettlement (physical or economic) is expected as a result (PS5). Similarly, the CWSs are located inside villages and do not have significant emissions and discharges, hence impacts on biodiversity are not expected. For the purposes of PS7, the CWSs are not expected to impact indigenous peoples or associated lands or resources on which indigenous peoples may be dependent nor are the CWS expected to impact any cultural heritage (PS8) including sites, structures, natural relief or resources of cultural importance for the communities. The Company will put in place a social, environmental, occupational health and safety management system (“SEMS”), consistent with IFC Performance Standards, to manage such project impacts.




E&S Categorization Rationale


The proposed investment in the Company to part finance the Pilot is a Category B project because a limited number of specific environmental and social impacts may result, which can be avoided or mitigated by adhering to generally recognized performance standards, guidelines or design criteria. Further, it is possible to readily design and implement engineering and management measures to mitigate the relatively limited impacts during both construction and operations. The Company will manage its environmental and social performance in accordance with applicable local laws and regulations and international standards, including IFC’s Performance Standards on Social and Environmental Sustainability.


Description of key environmental and social issues and mitigation


The Sponsor have presented plans to address these impacts to ensure that the proposed Project will upon implementation of the specific agreed measures, comply with the environmental and social requirements including: the host country laws and regulations; and IFC’s Performance Standards. The information about how these potential impacts will be addressed by the Company is summarized in the paragraphs that follow. Further information is provided in the attached Environment and Social Action Plan (ESAP). PS 1: Social and Environmental Assessment and Management System The Sponsors are aware of and sensitive to social, environmental, occupational health and safety (“SEHS”) aspects associated with the proposed Pilot. The Company will put in place an appropriate social and environmental management system (SEMS) consistent with IFC Performance Standards. In the interim, the Co-founders will, as part of the Shareholders Agreement and other arrangement/agreement between them, require WHI and the Company to ensure that IFC Performance Standards are adhered to during construction and operation of the CWSs. Both WHI and WHIIN are IFC investee companies. WHIIN has in place a QEHSMS consistent with IFC Performance Standards. WHI will, as part of its commitments as Co-founder of the Company, ensure that the Pilot is implemented and operated in accordance with the WHIIN QEHSMS. The Company will under its SEMS put in place standard operating procedures (SOPs) for: operation and maintenance (O&M) including SEHS aspects; obtaining applicable registrations, permits, consents and authorizations for both CWS’ and the Company’s operations; mitigating impacts associated with construction of the CWSs and discharges during operation; personnel health and hygiene; calibration and laboratory testing; training need analysis and training of employees; ensuring that vendors approved for equipment and consumables purchase meet the Company’s social and environmental standards; periodic monitoring and assessment of product quality, CWS performance and wastes; internal audits and implementation of corrective action; reporting to senior management; and management review of the management system. The Company will engage one qualified professional, for oversight of social, environmental, occupational health and safety aspects across all of its operations. Limited and temporary impact on ambient conditions (air quality and noise) may be expected during construction phase. The Company will implement mitigation measures including dust suppression and management of pollution from vehicular and equipment emissions to minimize these impacts. Electricity will be sourced from the grid but back up diesel generator sets will also be provided. The Company will ensure that emissions to air from the backup generator sets meet applicable IFC Environmental, Health and Safety Guideline (IFC EHS Guideline) limits. Package type diesel generator sets with integrated acoustic enclosure will be installed at the CWSs. The Company will implement a quality assurance program to ensure that the product meets WHO or Bangladesh potable water quality standards. The product/treated water will be tested every week in the initial three months of operation and monthly thereafter. Water test results will be displayed at each CWS in the local language. Further, the Company will undertake strip tests of the water on a daily basis. The Company will provide water cans to villagers who register to often take water from the CWS. The Company will implement procedures to ensure that these cans are periodically cleaned, with an appropriate cleaning chemical, to minimize risk of water contamination in the can. Wastewater generated in the process will include: (a) RO reject stream; (b) treatment plant back wash water; (c) raw water tank cleaning and settling discharge (after alum addition to raw water); (d) chlorine/hypo based sanitization wash/wastewater; and (e) can and tank washing wastewater. The wastewater will be treated in a settling tank and the overflow used either on CWS premises for irrigation/ horticulture and RO reject evaporated. At other locations, without RO system, the wastewater will be discharged through the village drain. The Company will implement procedures to ensure that the wastewater used on premises or discharged through the drain meet applicable IFC EHS Guideline provisions. The CWS’s will draw water from village ponds or other local water sources that are earmarked for drinking water purposes or groundwater with due approvals from the village and relevant authorities. Material impact on water resources is not expected on account of the Project. PS 2: Labor and Working Conditions While AKK will initially deploy two employees in the Company, the Company will directly employ about 20 employees for undertaking the pilot. Typically, the Company will deploy two operators at each CWS of 65 klpd and one operator at CWS of 21 klpd capacity. The operators engaged at each CWS will usually be from the same village. The operators will be engaged by the Company but WHI will be actively involved in the selection and supervision process. The Company will develop and implement HR policies and procedures compliant with national labor laws and consistent with IFC Performance Standards. The Company will put in place a suitably staffed HR department, which will be responsible for communicating the HR policies to employees. The terms of employment and working conditions will be communicated through the appointment letter/agreement. The Company will itself or as relevant, require WHI to: provide intensive training to its O&M staff including on safety, health and environment, to ensure that the CWSs are operated in accordance with the Company’s policies and procedures; ensure that all of its employees and non employee workers engaged in process/production areas undergo periodic health check up; and ensure that the approved equipment and consumables vendors are in compliance with Bangladesh labor laws. AKK’s employees deployed to the Company will be covered under by AKK’s HR Policies. AKK is in the process of developing a documented HR Policies and Procedures manual. AKK will review IFC Performance Standard 2 (PS2) and ensure that its HR Policies applicable to employees deployed in the Company are consistent with the PS2 provisions. The employees and O&M supervision staff deployed by WHI, will be covered under WHIIN HR Policies and procedures. WHIIN HR policies are consistent with IFC Performance Standards and will be suitably tailored to comply with Bangladesh labor laws. WHIIN’s technical services (O&M) SOPs include appropriate health and safety requirements. The Company will adapt and adopt WHIIN’s O&M SOPs and ensure: availability of personal protective equipment (PPE) at CWSs; that the material safety data sheet for washing chemicals and other hazardous materials are displayed in the local language at the CWSs; that antidotes in case of accidental exposure to chemicals are readily available at each CWS; that employees and operators are trained in health and safety aspects of relevance to the operations; that occupational health and safety in design and construction of CWSs meets IFC Performance Standards; delivery van drivers are trained in safe and defensive driving; and that accidents/incidents during construction and operations are recorded, reported, monitored, investigated and corrective action implemented.


Client’s Community Engagement


The Project, by virtue of its nature, involves extensive community engagement since community is the beneficiary/client group for the CWSs and potentially the community is expected to benefit from the Project through reduced incidence of waterborne diseases and the attendant adversities. The Company will engage with the community at multiple levels including: to obtain initial buy in/motivation of the community for starting a CWS project in the village; with the community leaders and elected representatives in local self government institution; and appropriate village and district level authorities. In view of the fact that local community is also the client group for the CWSs, the Company will implement an extensive education and awareness program to increase the number of households seeking to use the CWS’s treated water. The Company will however also implement a formal procedure to receive and respond to community concerns and grievances. The Company will display this community grievance redress procedure in the local language at each CWS.


Local Access of Project Documentation


The Sponsor and WHI will make available on their respective websites (www.akkhan.com) and (www.waterhealth.com), and at a later date once the Company is incorporated, the Company will make available on its website, the measures proposed to implement so as to conduct the Company’s business in accordance with IFC’s Performance Standards.


Inquiries and comments about the Project may be directed to:


Name: Mr. Murteza Rafi Khan Designation: Project Manager Address: Bay’s Galleria, 2nd Floor, Gulshan 1, Dhaka 1212, Bangladesh Phone: +880-2-9892169 Fax: +880-2-833873 e-mail: murteza.khan@akkhan.com website: www.akkhan.com



ENVIRONMENTAL AND SOCIAL ACTION PLAN AK KHAN WATERHEALTH BANGLADESH LIMITED INFRAV AK KHAN WH Project # 30225 Date: October 7, 2010



#
Environment/Social Action Plan
Indicator of Task Completion
Deadline


1
Co-founders of AK Khan WaterHealth Bangladesh Limited (the “Company”) will develop a legal compliance register for the CompanyObtain all relevant social and environmental consents/permits/authorizations as per relevant applicable regulation for the Company and CWS operations
Legal register accepted by IFCList of all permits/consents obtained, sent to IFC semi annually and copies maintained by Company for review by IFC during supervision
Prior to commitmentPrior to commencement of water sales at each CWS site


2
The Company will put in place a Quality Management System and a Social, Environmental, Occupational Health and Safety Management System (SEMS) consistent with IFC Performance Standards and as briefly discussed in the ESRS.
SEMS manual accepted by IFC
Prior to first disbursement


3
The Company will engage one qualified professional at corporate level, for oversight of social, environmental, occupational health and safety aspects across all of its operations.
Contract/appointment letter and CV of the professional accepted by IFC
Prior to first disbursement


4
The Company will put in place a Human Resource Policies and Procedures Manual consistent with IFC Performance Standard 2 provisions
HR Policies and Procedures Manual accepted by IFC
Prior to first disbursement


5
Appropriate provisions to be included in the Shareholders Agreement and other agreement/arrangement between and among the Co-founders (AKK and WHI) requiring WHI to ensure that:a) the Pilot CWSs are implemented in accordance with the WHIIN’s QEHSMS; andb) The employees and O&M supervision staff deployed by WHI, will be covered under WHIIN HR Policies and procedures suitably tailored to comply with Bangladesh labor law requirements and consistent with IFC PS2 provisions
Relevant provisions included in the Shareholders Agreement and other agreement/ arrangement between AKK and WHI and those provisions accepted by IFC
Prior to first disbursement


6
AKK will be required through the Shareholders Agreement and other appropriate agreement/arrangement to ensure that its employees deployed in the Company are covered under HR Policies and Procedures consistent with IFC PS2 provisions.
Relevant provisions included in the Shareholders Agreement and other agreement/ arrangement between AKK and WHI and those provisions accepted by IFC
Prior to first disbursement


7
The Company will put in place a formal community grievance redress procedure including procedures to communicate the same to local communities
Community Grievance Redress procedure accepted by IFC
Prior to first disbursement