Garadagh new dry Kiln 6 ESIA ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT. Delivering sustainable solutions in a more competitive world.

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1 Garadagh new dry Kiln 6 ESIA ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT Final Report March 2009 Delivering sustainable solutions in a more competitive world

2 DISCLOSURE NOTICE This and Social Impact Assessment (ESIA) for the new dry Kiln 6 Project was prepared by ERM GmbH on behalf of Garadagh Cement OJSC (Garadagh). The Final ESIA Report was released in March 2009 and initially disclosed by Garadagh in April The report is being disclosed in December 2009 in relation to possible financing from the Asian Development Bank and is an input to the environmental and social appraisal of the project. The report is disclosed without annexes which form an integral part of the document. However, all annexes will be made available to interested parties upon specific request to Garadagh or the Asian Development Bank. Contacts: Garadagh Cement OJSC: Sahil Settlement, Salyan Highway, Baku AZ -1083, Azerbaijan. Mr. Nariman Mantashev, QAOHSSE Manager Tel.: ext. 591; Asian Development Bank: 6 ADB Avenue, Mandaluyong City 1550, Philippines Mr. Don Purka, Senior Investment Specialist, Private Sector Operations Tel.: ; - December

3 FINAL REPORT GARADAGH CEMENT OJSC Baku, Azerbaijan ERM GmbH Frankfurt Siemensstrasse 9 D Neu-Isenburg Tel.: +49 (0) 61 02/206-0 Fax.: +49 (0) 61 02/ Garadagh new dry Kiln 6 ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT ESIA Final Report Büros Hamburg Daimlerstrasse 71b D Hamburg Tel.: + 49 (0) 40/ Fax: + 49 (0) 40/ March, 2009 Köln Gustav-Heinemann-Ufer 58 D Köln Tel.: + 49 (0) 2 21/ Fax: + 49 (0) 2 21/ Stuttgart Kurze Straße 40 D Filderstadt Tel.: +49 (0) 7 11/ Fax: +49 (0) 7 11/ Geschäftsführer Dr. Thomas Meschede Martin Gundert Prepared for: Garadagh Cement OJSC Sahil Settlement Salyan Highway Baku AZ-1083 PROJECT NO. P Amtsgericht Offenbach HRB Ust.-Id Nr. (VAT No.) DE Bankverbindungen Please remit to Commerzbank, Neu-Isenburg Konto-Nr.: BLZ: SWIFT: COBADEFF 504 IBAN DE Deutsche Bank, Darmstadt Konto-Nr.: BLZ: SWIFT: DEUTSCHDEFF 508 IBAN DE Mitglied der Group

4 This report has been prepared by ERM GmbH (ERM) with all reasonable skill, care and diligence within the terms of the Contract with the client, incorporating s General Terms and Conditions of Business and taking account of the manpower and resources devoted to it by agreement with the client. ERM GmbH disclaims any responsibility to the client and others in respect of any matters outside the scope of the above. This report is confidential to the client and ERM GmbH accepts no responsibility of whatsoever nature to third parties whom this report, or any part thereof, is made known. Any such party relies upon the report at their own risk. ERM GmbH Neu-Isenburg, March, 2009 Raimund Vogelsberger Project Director Achim Brönner Project Manager PROJECT NO. P , FINAL REPORT MARCH 2009 GARADAGH CEMENT OJSC/HOLCIM GROUP

5 CONTENTS 1 INTRODUCTION PURPOSE OF THE STUDY PROJECT PROPONENT BACKGROUND TO PROJECT Project Type and Size Location of the Project STAGE OF PROJECT PREPARATION ENVIRONMENTAL AND SOCIAL IMPACT ASSESSMENT FOR THE PROJECT BRIEF OUTLINE OF THE CONTENTS OF THE REPORT DESCRIPTION OF THE PROJECT CONTEXT OF THE PROJECT Need for the Project Project Setup Level of Planning Detail THE PROJECT SITES GENERAL CEMENT PRODUCTION PROCESS DESCRIPTION OF PRESENT GC PLANT AND PRODUCTION Current Plant Operation (Wet Kiln Clinkering Process) Site Layout Main production installations Ancillary Services and Equipment Infrastructure DESCRIPTION OF THE PROJECT AND FUTURE OPERATION New Dry Kiln 6 Project Site Layout GC Plant Ancillary Services and Equipment Process Control System Infrastructure On Site GC Plant Off Site Shakhgaya-West Quarry and New Crusher Operations 2-23 P , 0_TABLE OF CONTENTS_F.DOC I ERM/AETC, MARCH 2009

6 2.6 OPERATIONAL CONSUMPTION AND RELEASES TO THE ENVIRONMENT Raw Materials Fuels Energy Demand Emissions to the Air Current Operation New Dry Kiln 6 Operation Shakhgaya-West Quarry Water Demand and Discharge of Wastewater Current Operation New Dry Kiln 6 Operation Water balance existing vs. future operation Shakhgaya West Quarry Hazardous Materials Waste Current Operation New Dry Kiln 6 Operation Shakhgaya West Quarry Noise Emissions Current Operation New Dry Kiln 6 Operation Shakhgaya West Quarry Off-site Transportation Summary of Operational Consumption and Releases to the Environment Monitoring of Air Emissions and Effluents FIRE PROTECTION, SAFETY AND SECURITY FEATURES OPERATIONAL MANAGEMENT AND STAFFING The Plant Organisation Current Operation New Dry Kiln 6 Operation ENVIRONMENTAL AND HEALTH AND SAFETY (EHS) MANAGEMENT CONSTRUCTION ACTIVITIES AND SCHEDULE Activities on Garadagh Cement Plant Site/ New Dry Kiln General Construction Setup Construction Activities Site Access Transportation of Equipment Establishment of the Site Construction Programme and Schedule Construction Schedule 2-67 P , 0_TABLE OF CONTENTS_F.DOC II ERM/AETC, MARCH 2009

7 Construction Machinery Requirements Construction Workforce Construction Workforce Construction Traffic Transport of Materials Transported Construction Workforce Construction of the New Quarry Crusher Road and Railway Rehabilitation Site Security during Construction and Health and Safety during Construction BENCHMARKING OF THE PROJECT Cement Manufacturing Performance Indicators DESCRIPTION OF THE ENVIRONMENT INTRODUCTION General Consideration Study Area Data Sources Structure of the Baseline Section OVERVIEW OF THE AREA Topography Land Use Settlements Industry Infrastructure Agriculture Other Land Use GEOLOGY Overview Regional Geology Local Geology Shakhgaya-West Caravansarai Seismic Conditions General Tectonic Setting Seismic Zones Mud volcanoes SOILS 3-16 P , 0_TABLE OF CONTENTS_F.DOC III ERM/AETC, MARCH 2009

8 3.4.1 Regional Soil Characteristics Existing Soil Contamination HYDROGEOLOGY General Regional Situation On site HYDROLOGY CLIMATE General Climatic Conditions Climatic Parameters of the Study Area Temperature Precipitation Sunshine Hours Evaporation Relative Humidity Wind Characteristics AMBIENT AIR QUALITY Air Quality Standards Area of Interest and Available Data Emission Sources in the Area of Interest Ambient Air Quality Monitoring Smell Nuisance Atmospheric Dispersion Modelling of the Current Air Emissions General Dispersion Modelling of the Current Operation with Kilns Ambient Air Impact - Results and Discussion AMBIENT NOISE Introduction National and International Noise Standards and Guidelines Major Noise Emission Sources of the Current Cement Manufacturing Noise Measurements Noise Impact Modelling FLORA AND FAUNA Ecological Setting and Habitats of the Region Flora Fauna Protected Areas LANDSCAPE AND SCENERY SOCIO-ECONOMIC CONDITION OF THE AREA 3-55 P , 0_TABLE OF CONTENTS_F.DOC IV ERM/AETC, MARCH 2009

9 Introduction and Methodology National Context Administrative organisation of the area affected by the Project Area Likely to be Affected / Potentially Influenced by the Project Settlement Community Profile Infrastructure in the Project Area Industries / Establishments in the area Demographic Data - Analysis of the latest Census Information Garadagh District Further Socio-Economic Information Social Infrastructure, Health Garadagh Cement Corporate Social Responsibility Activities in the Region Local Perceptions about the Project CULTURAL HERITAGE ALTERNATIVES THE NO ACTION ALTERNATIVE PLANT SITE LOCATION PROCESS TECHNOLOGY FUELS LIMESTONE SUPPLY 4-5 P , 0_TABLE OF CONTENTS_F.DOC V ERM/AETC, MARCH 2009

10 5 ANTICIPATED ENVIRONMENTAL AND SOCIAL IMPACTS AND MITIGATION MEASURES IMPACT ASSESSMENT PROCESS General Introduction Assessment Methodology Assessment Content AMBIENT AIR QUALITY General National and International Standards and Guidelines Atmospheric Emissions during Future Plant Operation Ambient Air Quality Assessment General Results of Atmospheric Dispersion Modelling for Evaluation against National Standards Results of Atmospheric Dispersion Modelling for Evaluation against International Standards Atmospheric Emissions during Construction Activities Mitigation Measures within Plant Design Mitigation Measures during Construction Mitigation Measures during Operation IMPACTS ON CLIMATE Local and Regional Climate Greenhouse Gas Emissions NOISE AND VIBRATION Introduction Noise Impact Modelling of the New Dry Kiln 6 Operation Mitigation Measures Construction Noise Vibration Vibration during Construction IMPACTS ON LAND USE IMPACTS ON SOILS Potential Impacts Mitigation IMPACTS ON GROUND AND SURFACE WATER IMPACTS ON FLORA, FAUNA AND HABITATS 5-28 P , 0_TABLE OF CONTENTS_F.DOC VI ERM/AETC, MARCH 2009

11 5.8.1 Assessment of Impacts Mitigation VISUAL IMPACTS Cement Plant Shakhgaya-West Quarry ARCHAEOLOGY, HISTORICAL AND CULTURAL HERITAGE Assessment of Impacts Mitigation Measures NATURAL DISASTER RISKS Seismic Risk Storm Risk Flooding Risk INTERFERENCE WITH OTHER FACILITIES OR ACTIVITIES Industries Air Traffic SOCIAL AND SOCIO-ECONOMIC IMPACTS Introduction Methodology Key Socio-Economic Effects of the Project Key Socio-Economic Characteristics of the Project Area Population Potentially Affected by the Project Population Features in the Context of the Project Vulnerable Groups Potential Social and Socio-Economic Impacts of the Project General Socio-Economic Benefits Potential Social and Socio-Economic Impacts related to Construction of the Project Enhancement of Potential Positive Impacts and Mitigation of Potential Negative Impacts related to the Construction of the Project Potential Social and Socio-Economic Impacts related to Project Operation Enhancement of Potential Positive Impacts and Mitigation of Potential Negative Impacts related to Project Operation Issues to be considered in the context of long term future planning ENVIRONMENTAL AND SOCIAL MANAGEMENT PLAN (ESMP) GENERAL Construction Operation 6-3 P , 0_TABLE OF CONTENTS_F.DOC VII ERM/AETC, MARCH 2009

12 7 STAKEHOLDER ENGAGEMENT INTRODUCTION CONSULTATIONS UNDERTAKEN AND INFORMATION PROVIDED OPEN ROOM EVENT DECEMBER Setup of Open Room Event Outcomes of the Consultations Attendance Topics of Interest Summary of Questions and Answers Follow-up Requirements PROJECT RESPONSE FURTHER ENGAGEMENT PROCESS 7-14 P , 0_TABLE OF CONTENTS_F.DOC VIII ERM/AETC, MARCH 2009

13 LIST OF TABLES Table 2-1 Lifetime of potential limestone resources and reserves for new dry Kiln 6 operation 2-27 Table 2-2 Kiln stack emissions measured in GC plant (2008) vs. examples from kilns operated in Europe 2-31 Table 2-3 Current Emissions to the Atmosphere from Kilns #1 through #4 given as Mass Flow Rates 2-33 Table 2-4 Maximum expected new dry Kiln 6 emission concentrations 2-36 Table 2-5 Emissions to the Atmosphere from the future Main Stack of New Dry Kiln Table 2-6 Gross and net CO2 estimates 2-41 Table 2-7 Water Balance comparison between existing Kiln 1 4 and new Kiln Table 2-8 Main transportation figures for the current and the future situation 2-51 Table 2-9 Consumption and Releases in the Current and the Future Situation 2-52 Table 2-10 Estimated equipment required for Major Civil works and Operation Duration 2-69 Table 2-11 Kiln 6 emission parameters compared to international standards 2-78 Table 2-12 Plant efficiency Benchmarks 2-79 Table 3-1 Rock type description of Shakhgaya-West (Source: Holcim, 2004) 3-10 Table 3-2 Rock type description of Caravansarai Deposit 3-11 Table 3-3 Detected Earthquakes of the Absheron Peninsula since Table 3-4 Result of the DNV ground-water analysis (DNV, 2003) 3-19 Table 3-5 National and International Ambient Air Quality Standards 3-27 Table 3-6 Emissions in Garadagh District and Baku City for Table 3-7 Parameters of current GC plant emission sources 3-37 Table 3-8 Maximum of the calculated ground level concentration and deposition increments for the current situation, key substances 3-42 Table 3-9 Calculated ground level concentration and deposition increments; heavy metals 3-43 Table 3-10 Examples of noise sources and their sound pressure level 3-45 Table 3-11 IFC Standards for environmental noise 3-46 Table 3-12 Noise sources and noise areas taken for the noise prediction of the current operation 3-49 Table 3-13 Summary of Settlement Community Profile 3-62 Table 3-14 Statistic numbers of inhabitants 3-64 Table 5-1 Parameters of future emission sources 5-6 Table 5-2 Results of the SRM emissions modelling for evaluation against national standards 5-8 Table 5-3 Model results of the maximum of the calculated ground level concentration and deposition increments for the new dry Kiln 6; gases and particulate matter 5-12 Table 5-4 Results of calculated ground level concentration and deposition increments for the new dry Kiln 6; heavy metals 5-13 Table 5-5 Comparison of incremental concentrations predicted for the new dry Kiln 6 operation against national and international standards 5-15 Table 5-6 Noise Sources and Noise Areas taken for the Noise Prediction of the new dry Kiln 6 Project 5-22 Table 5-7 Number of Residents of Sahil and Umid employed at Garadagh Cement 5-46 Table 5-8 Projected Company Workforce 5-58 Table 5-9 Staff development of Garadagh Cement after Privatisation 5-59 Table 6-1 and Social Plan (ESMP) 6-5 Table 7-1 Consideration of Stakeholder Comments in the Project 7-10 LIST OF FIGURES Figure 1-1 Project Area and Location of the Project 1-5 Figure 2-1 Site Location Map of the Cement Plant and the Quarries 2-5 Figure 2-2 Exemplary Process Flow Diagram of Cement Production 2-7 Figure 2-3 Flow diagram of Cement Production with the Wet Clinker Production Process 2-9 Figure 2-4 Flow diagram of Cement Production with the Dry Clinker Production Process of New Dry Kiln Figure 2-5 Shakhgaya-West Quarry layout 2-24 P , 0_TABLE OF CONTENTS_F.DOC IX ERM/AETC, MARCH 2009

14 Figure 2-6 Crusher Site Layout 2-25 Figure 2-7 Water Flow Diagram of the Existing Wet Kiln Operation 2-43 Figure 2-8 Water Flow Diagram of the Future Dry Kiln Operation 2-45 Figure 2-9 Key Phases and Activities of Plant Construction Preliminary Schedule 2-68 Figure 3-1 Location of the GC Kiln 6 Project in its wider geographic context 3-2 Figure 3-2 Cross-Section through Sh. West and Caravansarai limestone deposit areas 3-9 Figure 3-3 Overview of Regional Seismicity Distribution 3-13 Figure 3-4 Caspian Sea level fluctuations 3-20 Figure 3-5 Baku Climate Chart: 3-21 Figure 3-6 Wind frequency and speed in Baku and Puta 3-25 Figure 3-7 Wind rose of Baku airport station as used for the modelling in this ESIA (year 2003; 10 -sectors) 3-39 Figure 5-1 Cross section profile of quarry surface evolution 5-39 LIST OF TEXT BOXES Box 2-1 Holcim Cardinal rules 2-62 Box 3-1 Cultural Heritage in Gradagh District 3-74 LIST OF PHOTOS Photo 2-1 View of the GC site 2-10 Photo 2-2 Wet kiln and clinker cooler 2-11 Photo 2-3 Rail and truck transportation from the limestone quarries 2-14 Photo 2-4 Planned construction site of Kiln 6(inside the fenced area) 2-20 Photo 2-5 Existing stacks and emissions control 2-30 Photo 2-6 Wind prone semi-open storage areas 2-30 Photo 3-1 An active mud volcano in close proximity to the Northern Route Export Pipeline, to the western vicinity of the project study area 3-15 Photo 3-2 Iris acutiloba found at the Shakhgaya-West Quarry (Spring 2008) 3-52 Photo 3-3 Pictures of the Sahil Settlement 3-59 Photo 3-4 Pictures of the Umid Settlement 3-61 Photo 3-5 The 16 th Century Shakh Abbas Caravansari (2008) 3-73 Photo 5-1 Present and Simulated view to the Garadagh Cement Plant from the highway, 8 km to the southwest of the site 5-33 Photo 5-2 Present and Simulated View to the GC Plant from the railway bridge west of Sahil Settlement, 0,5 km to the west of the site 5-34 Photo 5-3 Present and Simulated view to the Garadagh Cement Plant from Umid Settlement, 3 km to the south-west of the site 5-35 Photo 5-4 Present and Simulated View to the Garadagh Cement Plant from Sahil Settlement (NE fringe), 2 km to the east of the Project site 5-36 Photo 5-5 Present and Simulated View to the Garadagh Cement Plant from the Highway next to Sahil Settlement, 1 km to the east of the site 5-37 Photo 5-6 View towards Shakhgaya-West quarry from SE Photo 7-1 Project presentation to Open Room Visitors, 17 Dec Photo 7-2 Project presentation to Open Room Visitors, 18 Dec Photo 7-3 Public Information posting in Umid (at local admin office) 7-8 Photo 7-4 Public Information posting in Sahil (comment drop box next to local administration) 7-8 P , 0_TABLE OF CONTENTS_F.DOC X ERM/AETC, MARCH 2009

15 ANNEX Annex A Annex B Annex C Annex D Annex E Annex F Annex G Annex H Annex I Project Layout Plans Ambient Air Quality Monitoring Results and Air Modelling Dispersion Graphs Noise Measurement Results and Noise modelling dispersion graphs Overview of the environmental site conditions Flora & Fauna Public Consultation Baseline Field Survey of the Quarry Sites On site soil contamination Social Baseline P , 0_TABLE OF CONTENTS_F.DOC XI ERM/AETC, MARCH 2009

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