REGIONAL. Infrastructure Credit Facility to CIFI CIFI - Corporación Interamericana para el Financiamiento de Infraestructura, S.A.

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1 INTER-AMERICAN DEVELOPMENT BANK REGIONAL Infrastructure Credit Facility to CIFI CIFI - Corporación Interamericana para el Financiamiento de Infraestructura, S.A. (RG-0060) ENVIRONMENTAL AND SOCIAL MANAGEMENT REPORT (ESMR) August 2004 Project Team: Luis Lucena (Project Team Leader, PRI/GROUP I), Katsuyuki Kubo (PRI/GROUP I), Jozef Henriquez (PRI/SYN), José Felix-Filho (PRI/ESU), and Pilar Suescum (LEG), under the supervision of Hans Schulz (Head PRI/GROUP I).

2 Infrastructure Credit Facility to CIFI CIFI - Corporación Interamericana para el Financiamiento de Infraestructura, S.A. (RG-0060) ENVIRONMENTAL AND SOCIAL MANAGEMENT REPORT (ESMR) TABLE OF CONTENTS I. PROJECT DESCRIPTION... 1 II. ENVIRONMENTAL AND SOCIAL IMPACTS AND RISKS... 2 III. ENVIRONMENTAL AND SOCIAL MANAGEMENT AT CIFI... 2 IV. IMPACT AND RISK MITIGATION AND MONITORING... 3 V. RECOMMENDATIONS...4 i

3 I. PROJECT DESCRIPTION 1.1 The Bank has been requested to provide an infrastructure credit facility ( ICF, Facility, or Project ) in an approximate amount of US$ 50 million comprised of an A-loan (IDB) amount of up to US$ 25 million and a B-loan (private financing sources) amount of approximately US$ 25 million to Corporación Interamericana para el Financiamiento de Infraestructura, S.A. ( CIFI, the Company, or the Borrower ). Proceeds of the Facility will be used to provide financing for private sector infrastructure projects undertaken in the IDB s borrowing member countries ( Sub-Projects ) by companies operating in IDB member countries ( Sub-Borrowers ). 1.2 CIFI is a financial institution domiciled in Costa Rica and supervised by the Superintendencia General de Entidades Financieras ( SUGEF ). It was created by a partnership of seven leading international and regional banks and three Multilateral Development Banks ( MDBs ), including the Inter-American Investment Corporation, ( IIC ). After the equity has been disbursed by CIFI s Shareholders and fully invested in infrastructure projects, it is envisioned that the Facility will play a catalytic role in mobilizing international resources, allowing a gradual growth of CIFI s activities. At the same time, the A/B Loan is expected to have a demonstration effect for future private and public lenders, as well as equity investors that will eventually support further expansions of CIFI. 1.3 The A/B Loan will support the objectives of a very unique partnership between commercial and Multilateral Development Banks. Currently, around 64 per cent of CIFI s subscribed capital is held by private banks and 36 percent by Multilateral Organizations. Over 72 per cent of CIFI s capital is held by commercial banks based in Latin America and the Caribbean and Multilateral financial institutions, being the remaining 28 per cent held by two leading private institutions from non-regional IDB member countries. 1.4 The ownership structure of CIFI provides the Company with a very attractive network of financial institutions to support the origination of operations and to strengthen their credit approval process. After the completion of the first investment phase, by investing all equity contributed by their Shareholders, CIFI is intending to leverage their financing with the A/B Facility. IDB s Loan is, in turn, expected to attract more institutional investors to gradually increase CIFI s capital base. 1.5 The objective of this ICF is to address the shortfalls in the availability of medium- and longterm debt financing to support small- and medium-size infrastructure investments in Latin America and the Caribbean, in particular in the smaller economies. The Bank and CIFI have identified a gap in the availability of this type of long-term debt financing. The Bank s support for CIFI will provide leverage to the equity contributed by the Company s shareholders to provide additional resources to the market. As such, the Project has a potential for mobilizing private sector-led infrastructure projects in the Region in the form of project finance or corporate finance. 1

4 II. ENVIRONMENTAL AND SOCIAL IMPACTS AND RISKS 2.1 The IDB s Environmental and Social Strategy was presented and approved by IDB s Committee on Environment and Social Impact (CESI) on June 18, This Committee decided also that no further action would be required in terms of review by CESI on this Project. 2.2 The principal potential negative environmental, social, health and safety, and labor impacts and risks associated with CIFI are those related to the specific infrastructure projects that will be financed by the Corporation. These impacts can be diverse and their significance will depend on the specific project characteristics (e.g. sector, type, location, etc.). 2.3 The key potential environmental risks to the IDB associated with this Facility could include: (i) environmental credit (financial) risks to CIFI affecting their ability to repay the IDB; and (ii) reputational risks as a consequence of CIFI or Sub-Borrower's activities or lack of compliance. 2.4 Environmental credit risks refer to potential negative effects on CIFI s financial sustainability because of risks due to CIFI s financial programs (lending, etc.), such as reduction in asset values held as securities due to environmental liabilities, or increased probability of nonrepayment of loan due to environmental or social issues (e.g. clean up costs, law suits, fines, etc). 2.5 Reputational risks are mainly associated with: (i) CIFI and/or any Sub-Borrower's involvement in projects, activities, practices, or sectors (either as part of CIFI funded projects, or outside) that have significant public opposition or concerns; and (ii) material noncompliances by CIFI or Sub-Projects that is not properly resolved, relative to IDB s established environmental, social, and health and safety requirements. III. ENVIRONMENTAL AND SOCIAL MANAGEMENT AT CIFI 3.1 CIFI has an Environmental Policy that was adopted by a 2001 Agreement among Founding Shareholders (see Annex I); this policy contains an exclusion list of activities that are not allowed in the projects to be financed by the Corporation. In addition, CIFI adopts the same environmental, social, health, safety and labor guidelines and criteria as IIC s (see Annex II). CIFI also applies the IIC s project categorization scheme which assigns all projects one of four categories (I - low risk, to IV - high risk) based on the degree/magnitude of potential environmental risks. CIFI s due diligence procedures include assessment of compliance with their policy and guidelines. 3.2 CIFI s lending guidelines state that all projects must comply with their environmental guidelines. Companies whose projects are financed with funding from CIFI shall be subject to environmental and labor review consistent with internationally recognized and national environmental and labor laws, regulations, and standards. 3.3 CIFI s credit review process looks into the Environmental and Social aspects of a project quite early in the process to ascertain that the proposed project is likely to meet CIFI s 2

5 environmental, social, health, safety and labor requirements, as well as to assess if the proposed project poses any substantial environmental risks. Projects with serious environmental concerns and where sponsors show unwillingness to meet the underlying environmental responsibilities are dropped. 3.4 CIFI s Project Report format used for project analysis has a section for Environmental Aspects, and CIFI s Credit Risk Rating System, a key credit risk management tool, also has a grading category that qualifies projects based on their environmental and social dimensions. In both cases projects are assessed from an environmental compliance and environmental management issues. Also, CIFI s Risk and Issues section on their Project Report format may review these areas from an environmental risk perspective, where applicable. 3.5 Regarding supervision/monitoring of projects after Board approval, CIFI produces and updates their Project Supervision Reports semi-annually, which contains a specific section on the environmental factors of the project, in terms of report monitoring and covenant compliance. Additionally, CIFI is required to prepare an annual Environmental Performance Report evaluating the environmental, labor and occupational, health and safety performance of CIFI s borrowers for the previous year. 3.6 The major limitations and/or deficiencies identified during IDB s Environmental and Social Due Diligence (ESDD) regarding CIFI's consideration of environmental, health, safety and labor aspects in their activities and operations are associated with: (i) need to adjust CIFI's list of prohibited activities to include the project characteristics indicated in PRI's "Project or Project Characteristic Eligibility Criteria"; (ii) need to improve existing procedures to obtain and implement a structured Environmental Management System; (iii) need to introduce adequate mechanisms to ensure that CIFI and CIFI funded projects comply with applicable IDB's environmental, social, health safety, and labor policies and guidelines; (iv) need to expand the environmental and social section in the Project Report prepared by CIFI for each project being considered for possible funding; (v) need to expand the environmental and social section of the Supervision Report prepared by CIFI for each project under execution, to function as an Environmental Compliance Report for IDB's purpose; (vi) need to expand the Environmental Performance Report (prepared annually by CIFI, under the requirements of their Shareholders Agreement) to complement with assessment of compliance with IDB's Environmental and Social Requirements, and evaluation of implementation of the Environmental Management System; and (vii) need to improve mechanisms to insure adequate disclosure of project information and public consultation. IV. IMPACT AND RISK MITIGATION AND MONITORING 4.1 The potential negative impacts associated with Sub-Projects will be mitigated both individually, within each specific Sub-Projects, and also globally over all projects by the application of an adequate Environmental Management System (EMS) (see Annex III). The IDB will work with CIFI to strengthen and improve their EMS, mitigating some shortcomings found during the Bank s ESDD. Furthermore, CIFI will have to abide by the recommendations indicated in Section V. 3

6 V. RECOMMENDATIONS 5.1 The Bank (IDB) will require as part of the Loan Agreement that CIFI and all portions of the Project shall, at all times during the life of the Loan Agreement, comply with each of the following requisites: (a) The Company must prepare and submit to IDB a Supervision Report for each Sub-loan, in form and content acceptable to IDB (Annexes V and VI provide the guidelines for the contents of the Supervision Report), with the following frequency: (i) during the first year of the Agreement, for each semi-annual period, no later than thirty (30) days after the end of such period; and (ii) for each calendar year thereafter, in respect of that calendar year, no later than sixty (60) days after the end of such calendar year. (b) The Company must prepare and submit to IDB a copy of the annual Environmental Performance Report prepared by CIFI, in form and content acceptable to IDB, no later than ninety (90) days after the close of the fiscal year, including assessment of compliance with the Environmental and Social Requirements (see Annex III) and evaluation of implementation of the Environmental Management System. (c) The Company shall make all appropriate arrangements so that each Sub-Loan is made in such form and upon such terms and conditions as to require that each Sub-Borrower will comply with all the applicable laws and regulations, and any requirements established by the Borrower for such Sub-Loan related to the Sub-Project Environmental and Social Requirements (see Annex III). (d) The Company should not make any investment in project or business that does not comply with the Sub-Project Environmental and Social Requirements (see Annex III), including the Environmental and Social Eligibility Requirements listed in Annex IV. (e) The Company should not make any material change to the Environmental Management System without the written consent of the IDB. 5.2 Prior to First Disbursement of the Loan, the Company shall present the Environmental Management System, in form and substance acceptable to the IDB. 5.3 Prior to each disbursement, the Company must certify compliance with all Environmental Social Requirements (see Annex III) in the Loan Agreement. 5.4 The Bank will monitor the Facility s environmental, social, and health and safety aspects via internal Bank supervision actions (e.g. site visits, review of documentation, etc.), and, if needed, may contract an external independent environmental consultant, at Borrowers expense, to assist the Bank in supervision/monitoring of the Project and, if applicable, perform an independent environmental, health and safety audit. 4

7 ANNEX I CIFI s Environmental Policy The financing and investment policies and guidelines of the Company shall be consistent with the IIC s environmental and labor policies as outlined in Exhibit C hereto. These environmental and labor policies and guidelines may not be modified without the express approval of IIC's representative on the Company's Board of Directors. In accordance with IIC s environmental and labor policies, the Company shall not provide financing to any company that is primarily involved in the following prohibited activities: Production or activities involving harmful or exploitative forms of forced labor or harmful child labor. For purposes of this section, forced labor means all work or service, not voluntarily performed that is extracted from an individual under threat of force or penalty. Harmful child labor means the employment of children that is economically exploitative, or is likely to be hazardous to, or to interfere with, the child s education, or to be harmful to the child s health, or physical, mental, spiritual, moral, or social development; Production or trade in any product or activity deemed illegal under host country laws or regulations or international conventions and agreements; Production or trade in weapons and munitions; Production or trade in alcoholic beverages (excluding beer and wine); Production or trade in tobacco; Gambling, casinos and equivalent enterprises; Trade in wildlife or wildlife products regulated under the Convention on International Trade in Endangered Species of Wild Fauna and Flora; Production or trade in radioactive materials. This subsection does not apply to the purchase of medical equipment, quality control (measurement) equipment and any equipment where the radioactive source is considered to be trivial and/or adequately shielded; Production or trade in or use of unbonded asbestos fibers. This subsection does not apply to the purchase and use of bonded asbestos cement sheeting where the asbestos content is less than twenty percent (20%); Commercial logging operations or the purchase of logging equipment for use in primary tropical moist forest; Production or trade in products containing PCB s; Production or trade in pharmaceuticals subject to international phase-outs or bans; Production or trade in pesticides/herbicides subject to international phase-out; Production or trade in ozone depleting substances subject to international phase-out; Drift net fishing in the marine environment using nets in excess of 2.5 km. in length; and Such other projects as the Company shall determine are inconsistent with its policies and objectives. 5

8 ANNEX II CIFI AND IIC ENVIRONMENTAL AND LABOR REVIEW GUIDELINES I. INTRODUCTION Companies whose projects are financed with funding from CIFI shall be subject to environmental and labor review consistent with the standards set forth in IIC Policy "Procedure for Environmental and Labor Review of IIC Projects" (document CII/GP-5-6) and with internationally recognized 1, and national environmental and labor laws, regulations, and standards. II. PURPOSE 2.1 The guidelines set forth herein seek to ensure that companies financed by the CIFI are aware of the measures they will have to take (and the cost thereof) regarding the project being undertaken so as to prevent, control, or mitigate any environmental impacts and improve environmental quality. Implementation of this objective requires early identification of the type and magnitude of potential environmental problems and corresponding action that each case may require, and the supervision of environment-related activities throughout project execution and the life of the loan. III. CONSIDERATIONS 3.1 The environmental review process will involve consideration of the following, as appropriate: - Assessment of baseline environmental situation; - Compliance with national environmental laws, regulations and standards; - Sustainable use of natural resources; - Pollution controls (liquid effluents and air emissions) and solid and chemical waste management; - Use of dangerous substances; - Major hazard analysis; - Occupational health and safety; - Labor practices; - Fire and life safety; - Protection of human health, cultural properties, tribal peoples, endangered species, and sensitive ecosystems; - Resettlement issues; and - Labor practices CIFI will not finance companies that use forced labor or harmful child labor practices. Companies must comply with the laws in force in the country in which the project is being executed, including national standards protecting core labor standards 2 and the related treaties ratified by said countries. 1 World Bank, United States Environmental Protection Agency (USEPA), European Union 2 Core labor standards, as applied by national laws, are, among others, (a) freedom of association; (b) the right to organize and the right to collective bargaining; (c) abolition of forced labor; (d) elimination of forced labor and harmful child labor; (e) nondiscrimination in respect of employment and occupation. 6

9 3.2.2 Forced Labor consists of all work or service, not voluntarily performed, that is extracted from an individual under threat of force or penalty. "Harmful Child Labor" consists of the employment of children that is economically exploitive, or is likely to be hazardous to, or interfere with the child's education, or to be harmful to the child's health, or physical, mental, spiritual, or social development. IV. CATEGORIES 4.1 Projects will be classified into one of the following four categories based on their potential environmental impact and the resulting required level of environmental analysis: Category I Projects are designed specifically to have a positive impact in improving environmental quality. These projects do not require an Environmental Impact Assessment per se, but will involve detailed analysis of the environmental aspects of project design and supervision of project execution. Category II Projects normally do not result in direct or indirect environmental impact. Thus, an Environmental Impact Assessment is not required. Category III Projects may have moderate, specific negative environmental impact and have recognized, well-defined solutions. These projects usually require only a semidetailed Environmental Impact Assessment, but in certain cases may require a detailed Environmental Impact Assessment. Specific environmental design criteria will be developed for individual projects. Category IV Projects may result in diverse and significant negative impacts on the environment, thus requiring a detailed Environmental Impact Assessment. V. INCORPORATION OF ENVIRONMENTAL AND LABOR REQUIREMENTS Environmental and labor performance requirements and regular reporting requirements where applicable shall be stipulated in the agreements to be signed by the CIFI. VI. SUPERVISION 6.1 The CIFI shall be responsible for follow-up and supervision of the projects' environmental and labor performance so as to ensure due compliance with national environmental and labor laws, regulations, and standards and to ensure that these are in keeping with the guidelines set forth herein. The CIFI shall prepare an annual report on the environmental and labor performance of the projects that it finances and shall provide the IIC with a copy. 7

10 VII. COMPANY S ENVIRONMENTAL, LABOR AND DISCLOSURE OBLIGATIONS WITH THE IIC Definitions "Category IV Project" shall mean any project or borrower which, according to IIC's Environmental and Labor Review Guidelines, may have diverse and significant adverse or unprecedented environmental impacts. "Corrective Action Plan" shall mean a remediation or corrective action plan, including the details of an implementation schedule and costs, which, upon implementation, will enable a borrower to carry out its business in accordance with the IIC Environmental and Labor Review Guidelines, and in compliance with the National and Local Requirements. "Environmental Management System" or "EMS" shall mean the part of the overall management system of the CIFI relevant to the environmental, health, safety and labor and includes organizational structure, responsibilities, procedures and resources to: (a) impose requirements on each borrower (either immediately or, if a Corrective Action Plan is used, over a specified period of time) to carry out its business in accordance with IIC Environmental and Labor Review Guidelines (if applicable), and other environmental policies and standards, if any, of CIFI and comply with the National and Local Requirements, and (b) monitor the environmental, health, safety and labor performance of the borrower against applicable standards. "Environmental Performance Report" shall mean a written report to be prepared by CIFI, evaluating the environmental, labor and occupational, health and safety performance of CIFI s borrowers for the previous fiscal year. "IIC Environmental and Labor Review Guidelines" shall mean the guidelines applicable under the IIC Policy Procedure for Environmental and Labor Review, that are used for the identification, assessment and mitigation of potential environmental impact and labor issues related to the development of IIC-sponsored projects and the implementation of actions or investments required to assure compliance with applicable national, regional and/or international standards (such as World Bank environmental, health and safety guidelines). "National and Local Requirements" shall mean the environmental, labor, occupational, health and safety laws and requirements of the sovereign governments or any other host government, its provinces and local authorities in effect from time to time. Environmental Covenants CIFI shall comply with the following environmental covenants: Environmental Management Systems. As promptly as practicable, but in any event not later than the later of six months after CIFI s incorporation or the conclusion of the next IIC-sponsored or approved training, CIFI shall: (A) have had at least two (2) of its employees attend an IIC-sponsored or approved environmental training; (B) establish and implement an EMS satisfactory to the IIC and ensure that such EMS remains in full force and effect; (C) designate at least one of the employees who attended the training to implement and supervise the EMS, and/or as an environmental 8

11 coordinator to conduct reviews of the borrower with respect to National and Local Requirements, and the IIC Environmental and Labor Review Guidelines, or hire consultants to perform such reviews. A copy of such review for each borrower shall be delivered to the IIC (within 90 days of CIFI's lending decision to such borrower) for information purposes. In addition, CIFI shall promptly (1) notify the IIC if the employees mentioned above no longer perform such duties; (2) appoint new employees to replace them; and (3) ensure that such new employees attend the next scheduled IIC-sponsored or approved environmental training. CIFI shall not amend, modify or rescind the EMS without the approval of the IIC. All costs associated with attendance of the environmental training shall be to the account of CIFI. Environmental Performance Report. As promptly as practicable, but in any event not more than ninety (90) days after the close of the each fiscal year, CIFI shall furnish the IIC with an Environmental Performance Report. Environmental Certification. CIFI shall use reasonable efforts to obtain a certification of environmental compliance in respect of each borrower. Where CIFI considers a borrower to be environmentally sensitive such certification shall be based on an independent environmental report and in all other cases shall be based on the borrower s own certification. Corrective Action Plan. CIFI shall make reasonable efforts to cause the borrower to continue to comply with all applicable National and Local Requirements, and the IIC Environmental and Labor Review Guidelines. As promptly as possible after becoming aware of any activity by a borrower which does not comply with the applicable National and Local Requirements, and the IIC Environmental and Labor Review Guidelines, CIFI shall: (A) use reasonable efforts to cause such borrower to implement a Corrective Action Plan; and (B) use reasonable efforts to replace the loan in such borrower on commercially reasonable terms, taking into account liquidity, market constraints and fiduciary responsibilities, if any borrower does not implement a Corrective Action Plan as provided in (A) above. Environmental Investment Guidelines Investment Guidelines. CIFI shall (a) lend only to companies whose operations, to the best of its knowledge or for which due diligence investigation concludes, are (1) consistent with IIC Environmental and Labor Review Guidelines policy; or (2) in compliance in all material respects with National and Local Requirements and, in the cases where such requirements are deemed by CIFI to not to have been meet to develop a compliance program to cure such inconsistency or noncompliance within a reasonable period of time and have adopted and are in compliance with a Corrective Action Plan; and shall not (b) lend in any company that conducts or intends to conduct an activity classified as a Category IV Project by CIFI or by IIC unless CIFI shall have received prior written confirmation from IIC that such Category IV Project complies with the IIC Policy for Environmental and Labor Review Guidelines. Public Disclosure CIFI is responsible for managing the disclosure, whether handled directly or through the borrower. The information disclosed to the public must include; (1) a locator map, (2) a summary 9

12 description of the project, and (3) a summary review of the environmental and safety impacts and proposed solutions. That a minimum 30-day comment period is allowed from the public. In the event that it is a Category IV Project the period would be 120 days. The termination of the comment period shall have occurred before CIFI makes its final lending decision. Initial disclosure must be made (1) in the main public/local newspapers (a minimum of two) for three consecutive days, and/or (2) any other appropriate public medium and time period, so that it is widely available in-country and/or to potentially affected communities. CIFI should keep copies of the disclosed information at a locally accessible/in-country location. The disclosure must give clear instructions on how an interested party can submit comments or questions to CIFI. Any existing national disclosure requirements must be complied with. The specifics of each disclosure will be dependent on the unique characteristics of each project. In any event, the purpose of the above guideline is not to supercede or cause repetitive disclosure, where there is a legislatively required process, but to ensure that some minimum standard of disclosure and public participation are achieved. 10

13 ANNEX III SELECTED DEFINITIONS Environmental and Social Requirements means all requirements, conditions, standards, protections, obligations or performance with respect to (i) applicable law related to environmental, social, health and safety and labor; (ii) the Environmental Management System; and (iii) the Sub-Project Environmental and Social Requirements to any project financed by CIFI (including loans, guarantees, leasing). Environmental, Health and Safety Action Plan means a plan, in form and substance acceptable to the IDB, in relation to CIFI to correct, and to remedy all damage and other adverse consequences caused by, any non-compliance with any Environmental and Social Requirement or deficiency identified in IDB s Environmental and Social Due Diligence (ESDD), and to describe the actions necessary to develop and implement an Environmental Management System, which plan shall include: (a) a brief description of such non-compliance or deficiency, including the extent, magnitude, impact and cause thereof; (b) the proposed actions to correct, and to remedy all damage and other adverse consequences caused by, the non-compliance or deficiency; (c) the assignment of responsibility for implementing such proposed actions; (d) a time schedule for implementing such proposed actions, including the start date, the end date and key milestones; (e) an estimated cost of such proposed actions; and (f) the proposed actions to prevent similar such non-compliance from occurring in the future. Environmental Management System (EMS) means a plan, in form and substance acceptable to the IDB, in relation to CIFI and CIFI s activities pertaining to projects financed under the Facility to identify, assess, mitigate and monitor potential environmental, social, occupational health and safety, or labor impacts and risks associated with each sub-project and sub-borrower under the Facility. The EMS shall include, as a minimum, the following: (i) written policy defining the principles and objectives with respect to environmental, social, health, safety and labor aspects; (ii) complete written description of standard Sub-Project Environmental and Social Requirements, which shall include IDB environmental and social policies, IDB Private Sector Department environmental and social guidelines, Fundamental Principles and Rights at Work, World Bank Pollution Prevention and Abatement Handbook, the applicable sector guidelines established by the Inter-American Investment Corporation; (iii) written procedures describing the assessment of environmental and social matters in relation to a potential Sub-project and Sub-borrower, including an initial sponsor contact and subproject evaluation, complete environmental and social due diligence prior to consideration by the Borrowers credit committee, establishment of specific terms and conditions for the loan (legal) agreement; (iv) written procedures describing the definition and implementation of CIFI loan 11

14 supervision (monitoring) of environmental and social matters to ensure compliance with the specific Sub-Project Environmental and Social Requirements after financial closure for the life of the loan/guarantee; (v) resources necessary for the full and adequate implementation of the EMS, including specific staff/personnel specialized in environmental and social matters, budget for such staff/personnel related to EMS implementation, and training of the CIFI s financial investment officers, credit personnel, and loan administration staff with respect to the EMS; (vi) written procedures for collecting and reporting the necessary data and information on the status, compliance and performance related to environmental and social matters of Sub-projects funded under the Facility both to CIFI s management and to IDB; and (vii) written procedure to ensure adequate information disclosure and public consultation in relation to CIFI s activities and Facility funded projects. Fundamental Principles and Rights at Work means (i) freedom of association and the effective recognition of the right to collective bargaining; (ii) prohibition of all forms of forced or compulsory labor; (iii) prohibition of child labor, including without limitation the prohibition of persons under the age of 18 from working in hazardous conditions (which includes construction activities), persons under the age of 18 from working at night, and that persons under the age of 18 be found fit to work via medical examinations; (iv) elimination of discrimination in respect of employment and occupation, where discrimination is defined as any distinction, exclusion or preference based on race, color, sex, religion, political opinion, national extraction, or social origin; and (v) compliance with all International Labor Organization conventions and treaties which have been ratified by Costa Rica. Sub-Project Environmental and Social Requirements means (i) all applicable in-country environmental, social, health, safety, and labor laws and regulations, including permits and authorizations and all adopted/signed international conventions and treaties related to environmental and social matters; (ii) all standard Sub-Project requirements related to environmental and social matters established in CIFI s Environmental Management System and any project-specific requirements established as part of CIFI s environmental and social due diligence; and (iii) the Environmental and Social Eligibility Requirements listed in Annex IV. 12

15 ANNEX IV ENVIRONMENTAL AND SOCIAL ELIGIBILITY REQUIREMENTS The Project or the Company does not involve, either directly or indirectly, any characteristic listed below: (i) (ii) Those that are illegal under host country laws or regulations or international conventions and agreements, including without limitation host country requirements related to environmental, health and safety, and labor aspects. Weapons and munitions. (iii) Alcoholic beverages (excluding wine and beer) 3. (iv) Tobacco 4. (v) Gambling, casinos and equivalent enterprises 5. (vi) Wildlife or wildlife products regulated under Convention on International Trade in Endangered Species of Wild Fauna and Flora (CITES) 6. (vii) Radioactive materials 7. (viii) Unbounded asbestos fibers 8. (ix) (x) (xi) (xii) Commercial logging operations or the purchase of logging equipment for use in primary tropical moist forest 9. Forestry projects or operations that lack sustainable management, forestry projects in areas of high ecological value with the exception of preservation and light non-extractive use of forest resources. Plantation projects that would require the removal of existing non-degraded natural forest. Polychlorinated biphenyl compounds (PCBs). (xiii) Pharmaceuticals subject to international phase outs or bans 10. (xiv) Pesticides/herbicides subject to international phase outs or bans This does not apply to companies for which the operations/activities related to these criteria comprise less than 10 percent of companies total annual revenue. 4 This does not apply to companies for which the operations/activities related to these criteria comprise less than 10 percent of companies total annual revenue. 5 This does not apply to companies for which the operations/activities related to these criteria comprise less than 10 percent of companies total annual revenue This does not apply to the purchase of medical equipment, quality control (measurement) equipment and any equipment where it can be demonstrated that the radioactive source is to be trivial and/or adequately shielded. 8 This does not apply to the purchase and use of bonded asbestos cement sheeting where the asbestos content is <20%. 9 Primary forest is defined as relatively intact forest that has been essentially unmodified by human activity for the previous 60 to 80 years; and Tropical moist forest is generally defined as forest in areas that receive not less than 100 mm of rain in any month for two out of three years and have an annual mean temperature of 24 0 C or higher. 10 Pharmaceutical products subject to phase outs or bans in United Nations, Banned Products: Consolidated List of Products Whose Consumption and/or Sale Have Been Banned, Withdrawn, Severely Restricted or not Approved by Governments. (Last version 2001, 13

16 (xv) Ozone depleting substances subject to international phase out 12. (xvi) Drift net fishing in the marine environment using nets in excess of 2.5 km. in length. (xvii) Transboundary trade in waste or waste products 13, except for non-hazardous waste destined for recycling. (xviii) Persistent Organic Pollutants (POPs) 14. (xix) Non-compliance with workers fundamental principles and rights at work 15. (xx) Involuntary resettlement 16 (xxi) Significant degradation of a National Park or similar protected area Pesticides and herbicides subject to phase outs or bans included in both the Rotterdam Convention ( and the Stockholm Convention ( 12 Ozone Depleting Substances (ODSs) are chemical compounds which react with and deplete stratospheric ozone, resulting in the widely publicized ozone holes. The Montreal Protocol lists ODSs and their target reduction and phase out dates. The chemical compounds regulated by the Montreal Protocol includes aerosols, refrigerants, foam blowing agents, solvents, and fire protection agents. ( 13 Defined by the Basel Convention ( 14 Defined by the International Convention on the reduction and elimination of persistent organic pollutants (POPs)(September 1999) and presently include the pesticides aldrin, chlordane, dieldrin, endrin, heptachlor, mirex, and toxaphene, as well as the industrial chemical chlorobenzene ( 15 Fundamental Principles and Rights at Work means (i) freedom of association and the effective recognition of the right to collective bargaining; (ii) prohibition of all forms of forced or compulsory labor; (iii) prohibition of child labor, including without limitation the prohibition of persons under 18 from working in hazardous conditions (which includes construction activities), persons under 18 from working at night, and that persons under 18 be found fit to work via medical examinations; (iv) elimination of discrimination in respect of employment and occupation, where discrimination is defined as any distinction, exclusion or preference based on race, color, sex, religion, political opinion, national extraction, or social origin. (International Labor Organization: 16 Unless it can be fully demonstrated that such involuntary resettlement fully complies with the IDB Policy on Involuntary Resettlement (OP-710). 17 In addition to in-country designated areas, other areas include: natural World Heritage Sites (defined by World Heritage Convention, United Nations List of National Parks and Protected Areas, designated wetlands of international importance (defined by RAMSAR Convention, or selected areas (e.g., strict nature reserves/wilderness areas, natural parks, natural monuments or habitat/species management areas) defined by IUCN (The World Conservation Union, 14

17 ANNEX V INFORMATION TO BE INCLUDED IN THE PROJECT REPORT FOR EACH ELIGIBLE SUB-PROJECT SUB-BORROWER'S GENERAL INFORMATION Name and location Economic Group Description of the Sub-Borrower's activities, track record, size (i.e., total Assets, total annual revenues, number of employees) and market positioning Ownership Structure and Management SUB-BORROWER'S FINANCIAL HIGHLIGHTS AS OF THE RELEVANT DATE Show annual figures and figures from most recent quarter with comparative figures from same period of the previous fiscal year Fixed Assets Working Capital Total Assets Long-Term Debt Shareholder's Equity Revenues Gross Margin Operating Income Net Income Operating Cash Flow EBITDA Current Ratio Long-Term Debt / Equity Ratio Interest coverage ratio (if applicable) Total exposure of CIFI to Eligible Sub-Borrower (including the proposed Sub-Loan) 15

18 ELIGIBLE SUB-PROJECT INFORMATION Infrastructure Sector / Sub-sector (i.e., Power/Generation, Transportation/Toll roads, etc.) Brief description of the Sub-Project to be financed (i.e., activities, contractual arrangements, debt repayment sources, etc.) Project Costs (Fixed Assets, Permanent Working Capital, Other) Funding sources (IDB funds, other debt, equity, internal cash generation, etc.) Indicators of expected financial performance (i.e., Internal Rate of Return, Current Ratio, Debt Service Coverage Ratio) Description of activities performed, observations and results of the environmental and social due diligence as established by the Environmental Management System, including: (i) type of due diligence (in-house, use of external consultants, site visits, documents reviewed), (ii) evidence of compliance with project-specific Sub-Project Environmental and Social Requirements, (iii) description of environmental and social assessments that have been undertaken in relation to the project, including actions performed to insure adequate disclosure of information and public consultation; (iv) description of principal impacts and risks related to environmental and social matters; (v) description of measures to control, mitigate, and monitor impacts and risks; and (vi) description of the Sub- Borrower s monitoring/supervision plan with respect to environmental and social matters, and Sub-Project Environmental and Social Requirements during the life of the subloan/guarantee. SUB-LOAN TERMS AND CONDITIONS Purpose (in terms of specific project costs to paid out of the Sub-Loan proceeds) Total tenor (including grace period) Principal repayment profile including amortization schedule Interest rate Proposed disbursement schedule Environmental and social terms, conditions and requirements, including Sub-Borrower reporting requirements, and proposed CIFI monitoring/supervision program. 16

19 ANNEX VI INFORMATION TO BE INCLUDED IN THE SUPERVISION REPORT GENERAL ASPECTS Disbursements & Principal Repayments Summary (Actual and Forecasted) Confirmation of compliance with the terms and conditions of the Infrastructure Credit Facility Agreement SUB-PROJECT / SUB-LOAN SPECIFIC ASPECTS (to be included for each Sub-Loan made with proceeds of the Loan) Updated Sub-Borrower s General Information (if applicable due to changes not previously reported) including name, description of activities, track record, market positioning, ownership structure and management. Updated Sub-Borrower's Financial Highlights (see key figures and ratios included in the Project Evaluation Report), including an assessment of performance (in descriptive form). Updated Sub-Project's information (if applicable due to changes not previously reported), including project costs, funding sources, indicators of financial performance, among others. Updated Sub-Loan's information (if applicable due to changes not previously reported), including tenor, grace period, principal repayment schedule and interest rate, among others. Updated status of Sub-Loan's disbursed, undisbursed and repaid principal amounts. Payment Record: i.e., repays on time, amortizes, renews (roll-over). Also, detail any past due amounts (interest and principal) together with number of days past due. Existing collateral (i.e., real estate, equipment/inventory, securities, cash, bank guarantees, sponsor guarantees etc.). Risk Classification of the specific Sub-Loan and related provisions. Confirmation of compliance with the requirements of the use of proceeds and specific requirements related to Sub-Loans and otherwise detailing any non-compliance, together with the action being taken to secure compliance. Information on performance and compliance with the Environmental and Social Requirements, including in particular the Environmental Management System, and the performance and compliance of Sub-Projects with their specific Sub-Project Environmental and Social Requirements. 17