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INFRASTRUCTURE LEASING & FINANCIAL SERVICES LIMITED

ENVIRONMENTAL AND SOCLAL REPORT

VOLUME 1: EXECUTIVE SUtMMARY

November 1995

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LIST OF ACRONYMS

ADR - Alternative Dispute ResolutionBOO - Build Own OperateBOOT - Build Own Operate TransferBOT - Build Operate TransferCBO - Community Based OrganisationCC - Corporate ConsultantCFD - Contractual Framework DocumentationCOD - Committee of DirectorsCPCB - Central Pollution Control BoardCRZ - Coastal Regulation ZoneDFIBR - Detailed Feasibility and Investrnent Banking ReportDPI - Detailed Process of ImplementationEA - Enviromnental AssessnentEAP - Enviromnental Assessment ProcessEAR - Enviromnental Assessment ReportED - Executive DirectorEIA - Environental Impact AssessrnentlEMP - Envirownental Mitigation PlanESMG - Environmental and Social Managemelt GroupESR - Environmental and Social ReportFRI - Forest Research InstituteGOI - Government of IndiaIL&FS - Infrastructure Leasing and Financial Services LimitedIPDP - Indigenous People Development PlanISR - Initial Screening ReportITRC - Indian Toxicology Research CentreLA - Local AuthorityLAA - Land Acquisition AssessmentMA - Multilateral AgenciesMoEF - Ministry of Environment and ForestsMOU - Memorandum of UnderstandingNEERI - National Environment Engineering Research InstituteNGO - Non Governmental OrganisationO&M - Operation & MaintenanceOD - Operational DirectivePAP - Project Affected PersonPRA - Participatory Rural AppraisalR&R - Resettlement and RehabilitationRAP - Rehabilitation Action PlanREP - Risk Evaluation ProcessRMG - Risk Management Group

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RMP - Risk Mitigation PlanSA - Social AssessmentSAMP - Social Assessment and Management PlanSAP - Social Assessmcnt ProcessSAR - Social Assessment ReportSDP - Staff Development PlanSIA - Social Impact AssessmentSPCB - Slate Pollution Control BoardSPV - Special Purpose VehicleTOR - Terms of ReferenceUMTS - Urban Mass Transit SystemWB - World BankWUI - Wildlife Institute of India

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EXECUTIVE SUMMARY

(1) Infrastructure Leasing and Financial Services Limited (IL&FS) is pioneering andpromoting innovative approaches to infiastucture development in India. It is developinga pipeline of commercially viable projects which includes urban by-passes, mass transitsystems, water and sanitation infrstructure and integrated area development. Theprojects 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 ensurethat a project is developed in consonance with the ESR and is adequately protected fromattendant risks.

(3) Thus, the purpose and aim of the ESR is to provide the Institution an overall frameworkto guide it in the identification, assessment and management of cnvironmental and socialconcerns at the organisational and at the project level.

(4) The ESR has been prepared by IL&FS with the assistance of Consultants - DevelopmentAltematives - specialised in the field of environment and social issues. The process ofpreparing this report has included desk research on the legal and institutional framework,analysis of priority issues in the infrastructure sector, consistency checks withoperational directives of the World Bank and other multilateral agencies. There havealso been a series of discussions within and outside IL&FS for the preparation of theReport

(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 threecardinal 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 mitigationmeasures will cnsure minimal adverse impacts.

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(7) IL&FS is intemalising this Environmental and Social statement into its businessoperations through detailed operational procedures including systems for continuousperformance evaluation and self regulation. The highlights of an Annual Env.ronmentaland Social Audit will be made public alongwith the Annual Balance Sheet.

(8) The legal and constitutional setting provides the context in which the environment andsocial statement and operational procedures of IL&FS is framed. Fundamental nationalcommitmnents are enshrined in the Constitution of India, while the Acts, Notifications,policies, rules and other documents issued by Central and State Governments provideoperational details. India also has obligations on environmental and social issuesthrough its participation in intemational conventions and treaties.

(9) A number of specific regulatory instruments for environmental protection have beendeveloped by both Central and State Governments. Many of these have a bearing onIL&FS infastructure projects. (India's contributions to and learnings from negotiationsfor international treaties have also helped immensely in sharpening the focus of theregulatory instruments currently in place). Most States and Central Government haveeither Ministries or departments of environment and forests as agencies dealing withenviromnmtal 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 theexperience of the World Bank as embodied in its Operational Directives. It hasincorporated the strengths of both the World Bank operational directives and the Indianlegislation and policies in the ESR.

( 11) Compared to the more specific legal instruments on environmental issues, thelegislations, 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 hasdeveloped its policy and operational procedures based on the legal and policy frameworkin 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&Rprocess, the ESR provides a menu of typical impacts that project affected households andindividuals may experience. Against these impacts, the corresponding beneficiarydesignation and the possible entitlement options have been developed based on theoperational directives of the World Bank.

(14) The actual combination of types of impact, beneficiaries and entitlement options willdepend on the specificities of a sub-project itself. lt would, thus, be up to the Special

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Purpose Vehicle (SPV) and its sub-project consultants team to develop a coherentrehabilitation action plan. IL&FS will remain responsible for appraising it within theproposed operational fiamework.

(15) While infrastructure projects deliver major benefits, the construction and operation ofeach type of project involves certain activities that could have adverse environmental andsocial 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 theproject will be identified, assessed and a suitable mitigation plan evolved. The exercisebegins with the identification of issues in the alternative project sites. The degree andmagnitude of these issues are captured in the subsequent investigations (EA and SAprocess). 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 theproject 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 insome 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 ofland and assets, on entitlement policy for each category of impact, minimisation ofcumbersome procedures and a well developed compensation package.

(21) In some of the infrastructure projects, there may be specific issues relating tomarginalised and vulnerable groups like the economically and socially disadvantaged;the elderly; women and children; the physically handicapped; and indigenous people. Asa general principle, IL&FS will aim at enhancing their opportunities.

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(22) In each project, IL&FS will attempt to establish an effective local mechanism sensitiveto socio-economic issues and capable of co-ordinating implementation of. various projectcomponents including RAP and IPDP. Non-Government Organisations (NGOs) andCommunity Based Organisations (CBOs) will play a critical role in this process whichwill also redress the grievances of the affectcd groups.

flR:ATIQliALPRQCDURES

(23) The environmental and social assessment process will dovetail with the IL&FS projectcycle. It is envisaged that at each stage of the project cycle, environmental and socialassessment issues would be addressed concurrently. Based on the foregoing principles, asummary 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/ - oMemorindunofidtndiigGovernment (MoU)

- Finalisation of Channels ofConsultation

Finalisation of Temis of IL&PFSSPVJSponsor/ Terms of Rcference (ToR) forReference for project Consultant appointnent of consulantspreparation studiesAppontment of consultants .1L&FS. SPV/Sponsor Consultants AppointedProject Prearaton SPVlSponsodCoDrnt Draft final documentation prepared

____________.____ * according to agred fornatsInitial Project Evaluation IL&FS/ Consultant, - Initial Project Evaluation

SPV/Sponsor Report- Agreements on project

*__ documentationSelction of Opertor IL&FS&SPVtConsultant - Award of RecommendationProject Financial Close IL&MS SPVYSponsor, - Final Project Evaluation

-Government, Opeator. . ReportMerchant Banker - Signing of Agreements

- Finalisation of project financeconsortium

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 & SocialAssessment process. IL&FS is committed to ensure that each project will rigorouslyfollow a detailed Environment and Social Assessment Process as summarised in the tablebelow:

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EANA&EROCERSUMMARY

MIESTONE i RESPONSIBILITY I PRODUCT

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Environmnental/Social Scre g IL:8tFS, SPV/Sponsor, IL&FS Environmental screcning andiwith SPV/Sponsor i social screening as part of

3I, Ptoject Inidal Screening' . Report

- Decision to proceed orotherwise

Envi omnenal/SocinlScoprg ---*- --- --- ScPp/ and coveage of EAR/SARFinabLsation of Terms of UL&FS,SPWLANConsultant I Tcnns of Reference (ToR) forReference for EA- and SA t appointment of consultantstudiesAIppomntment of consultants IL&FS /SPV/Sponsor Consuitants Appointed _

EA/SA Study I SPV/Sponsor through, Draft EARSGAR including:Consultant EMP

-RAPIPDPImplementing Monitoring PlanI- nsitional RcsponsibilityFramework

- Risk Allocation FrameworkReview of EAR/SAR IL&FSPViSponsor - Clcarance by Govcrnment

a agenciesConcurrence by MAAgrcanent on EAR/SARactions

Translation of Agrcemcnts into IL&FS/SPWOpcratorI Concession AgreemncatLcgal nstments Contractor, SPV & Government Shareholders Agreement

Construction AgreementO&M Agremcnt

l____.____.____ -_ Lcnders Agreem ntProjcct Monitoring nL&FS/SPV/Lenders Periodic Monitoring ReportsAnnual EnvironmnwLtal and Corporatc Consultant Environment and social audit reportSocial Audit

(25) The Environmental Assessment Process (EAP) will identify likely environmentalimpacts and evolve relevant mitigation measures. While the project will attempt toenhance environmental quality, it will at a minimum prevent or set in place appropriatemitigation measures. The EAP will be undertaken by a multi-disciplinary team ofconsultants with support from NGOs, CBOs, Government Agencies and due processes ofconsultation.

(26) IL&FS is committed to ensure that the legitimate needs of the project affected groups arefulfilled through a transparent process acceptable to the concemed stakeholders. TheSocial Assessment Process (SAP) adopted will restore the quality of life, if not improveit, when compared to the situation before the infrastructurc project. The SAP will be

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undertaken by a composite team drawn from among specialists like anthropologists,sociologists, community development experts; and others from non-governmentalorganizations (NGOs), community based organizations (CBOs), project affected personsand appropriate public institutions.

ENVERONMMANTA AN1) SOCIAT, RISK MANAGEMEN

(27) IL&FS shall establish structures that will serve to minimise many of the normalinfrstructure project risks. Nevertieless, IL&FS will remain exposed to several otherrisks,especially relatingtoenviromnental andsocialconcems.

(28) Major environment and social problems could adversely affect project operations,eamings and hence loan servicing obligations. Consequently IL&FS will placesignificant emphasis on a rigorous Enviromnent and Social Risk Assessment, Analysisand Management at the project level.

(29) In order to effectively manage the environmental and social risks attendant toinfrastructure projects, IL&FS will incorporate a risk evaluation process at each stage ofthe EA1SA process.

(30) In essence, the risk evaluation process shall enable the Institution to develop appropriatemechanisms to manage and monitor risks on an on-going basis. Within IL&FS the riskevaluation process shall be implemented by the project team and the Risk ManagementGroup.

(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 theappropriate allocation of risk and the associated liabilities, through a contractualframework and, if feasible, insurance coverage.

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(33) Each project will have a responsibility firamework outlining the extent of risk andassociated liability to be shared between cach of the project stakeholders. Theinstruments 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' agreementShareholders.

(d) Risks/responsibilities to be borne O&M Contractby Operator.

(e) Risks/responsibilities to be borne Construction Agreementby Contractor.

ORGAfSATIONAL U BPPORT

(34) IL&FS shall establish an organisational structure with the requisite expertise to ficilitatecompliance with the ESR. It will inculcate and develop the requisite skills within thehistitution, and access complementary and specialised skills through the appointnent ofExternal Consultants on an assignment basis.

(35) The table below summarises the responsibility for each task within IL&FS. Thisallocation framework assigns departmental responsibilities with a view to integrating theenvironment and social assessment process with the overall project cycle. The processflow in terms of preparation, review and authorisation is geared towards ensuring thatsufficient independent cross-checks exist within the system to ensure effective processand management control.

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|[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 _ DirectorsEnvironmental and Social r Independent Consultants Committee of Board ofAudit __ _ _ _ _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 theProjects Department.

(b) Appoint a Corporate Consultant for Environmental and Social issues.

(c) Clearly delineate functions/across concemed Departments and provide thenecessary training required to ensure that the requisite levels of skills andawareness are developed within each of the concemed Departrnents.

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(37) At the project level, IL&FS will ensure that the SPV/Project Sponsor appoints ProjectConsultants to undertake assignments on environmental and social issues in conformitywith its business practices. Project Consultants for social issues will be selected fromamong 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&FSwill implement a staff development plan. The Staff Development Plan (SDP) is orientedto facilitate the implementation of the environmental and social assessment process as anintrinsic 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 socialassessment process. At the present juncture, IL&FS staff have not been fornally trainedwith respect to environmental and social issues. Thus, all concerned staff will initiallyundergo an orientation programme on the ESR and its application to project specificenvironmental and social issues. Subsequently, each Department will undergo trainingspecific to their responsibilities in the EA/SA process

(40) Training modules will include a combination of workshops, seminars, site visits andinteractions with project authorities. The responsibility for implementing the SDP inIL&FS will vest with the Personnel Department

(41) As a financial intermediary, IL&FS will access funding from a variety of lendersincluding multilateral agencies such as the World Bank

(42) In order to ensure that the projects are in conformity with World Bank's ODrequirements and business practices, IL&FS shall submit the following documents forthe review of the Bank. The table belowprovides the institutional interface matrix

INTERFACE MARIX

EAJSA MILESTONE | OUTPUT TO BE SUBMITTED TO THEI ~~WORLD BANK

Screening . !nitial screening reportFinalisation of tenas of reference for EA and SA Terms of referencestudiesReview of EA and SA studics and mitigation: Dmft EAR and SAR according to agrccd formatsplansTranslation oragremcnts into instrumcnis =cndcrs Agreemcnt alongwith oth_r AgreemcntsMonitoring * CompliancireportEnvironmcnalw and Social Audit Audil complianec rnport

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(43) It is envisaged that World Bank concurrence to the output generated at each milestonewill be obtained prior to progressing to the next stage. However, when the capacity ofIL&FS is in place, it is expected that World Bank and other multilateral agencyconcurrence will be required only for the EAR and SAP Summary Reports and theagreements, prior to approving finances for sub-projects. This capacity building isexpected to take two years.

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