Surpapel Group Project

MIGA has been asked by Cordiant Capital Inc. and other lenders yet to be identified (“Guarantee Holders”) to support up to US$82.5 million 7-year non-shareholder loan to SurpapelcorpS.A. (“Surpapel”) and Productora Cartonera S.A. (“Procarsa”) (together, the “Project Enterprise”) to refinance existing loans and to optimize capital structure for an existing operation.  The Project comprises of an existing paper mill and a corrugated cardboard box plant in Duran, Ecuador, and six existing recycling collection centers in Ecuador.  Additional details about MIGA cover are available in the Summary of Proposed Guarantee (SPG) disclosed on the MIGA website and available here

The Surpapel Group is a corporate group consisting of three integrated businesses: (i) Repaper Reciclaj del Ecuador S.A. (“Repapers”), which collects and sells all of its recycled cardboard to Surpapel for pulp production; (ii) Surpapel, a 140,000 metric tons per annum (“tpa”) paper mill producing recycled paper, approximately 80% of which it sells to Procarsa; and (iii) Procarsa, a 168,000 tpa corrugated cardboard box plant and combined 220,000 tpa printing presses, that produces corrugated boxes and other packaging products predominantly for Ecuador’s export market. Except for Repapers’ six warehouses and collection centers, the entire business is located in the Duran industrial complex (“Duran”) 14 kilometers east of Guayaquil, Ecuador’s second largest city.

The raw materials required by the Project are sourced locally and regionally.  Approximately 40% of the fiber is sourced from recycled paper and about 60% from virgin fiber imported from the United States.  The recycled paper is mechanically treated and processed without deinking at the Surpapel paper mill.  Surpapel receives approximately 64% of required paper from Repapers (recycled), 20% from Procarsa’s cardboard waste, and 16% from other local cardboard producers.  Surpapel supplies approximately 59% of the paper rolls required by Procarsa  Ink used at Procarsa cardboard box plant is free of heavy metals.

Electricity to the Project is provided by an independent power producer in Duran, a boiler at the Surpapel mill, a backup diesel generator, and from the national grid at the Repapers collection centers.

Surpapel Group has strengthened productivity and resource efficiency of the companies by implementing process automation and modernizing the water treatment plant at Surpapel to allow reuse of processed water. Surpapel has also expanded its lines of dryers to increase drying capacity and expanded installed production capacity.  Procarsa purchased three new industrial scale printers and gluers, and corrugated systems which have increased productivity and quality.

The Project is categorized as Category B according to MIGA’s Policy on Environmental and Social Sustainability (2013) as the environmental and social (“E&S”) impacts are mostly site specific and localized and can be avoided or mitigated by adhering to generally recognized good practice.  Specific key E&S issues include:  E&S management capacity, environmental and occupational safety aspects typically associated with pulp and paper operations (e.g., management of emissions to air and water, noise, worker health and safety), life and fire safety (including fiber dust as fire hazard), wastewater treatment and disposal, and primary supply chain management.  MIGA also considered the contextual risks associated with ongoing challenges with child labor in the informal recycling sector.

While all of MIGA’s Performance Standards are applicable to this investment, based on our current information, the Project will have impacts which must be managed in a manner consistent with the following Performance Standards:

• PS1:  Assessment and Management of Environmental and Social Risks and Impacts
• PS2:  Labor and Working Conditions
• PS3:  Resource Efficiency and Pollution Prevention
• PS4:  Community Health, Safety and Security

PS 6 (Biodiversity Conservation and Sustainable Management of Living Natural Resources) requirements are addressed under PS 1 in the context of potential adverse biodiversity impacts related to the Project’s primary supply chain.

PS 5 (Land Acquisition and Involuntary Resettlement) is not applicable because the Project will be implemented within the existing facilities and on land already owned / leased and occupied by the companies.  The Project sites are located in either well-developed urban industrial or existing mixed use commercial-industrial areas, therefore impacts related to PS 7 (Indigenous Peoples) and PS 8 (Cultural Heritage) are not expected.

In addition, the following World Bank Group Environmental, Health, and Safety (WBG EHS) Guidelines are applicable to the Project:

• General EHS Guidelines (2007), and
• EHS Guidelines for Pulp and Paper Mills (2007).

Future activities carried out by the Project (such as installation and operation of a new biomass boiler) will be required to be managed in a manner consistent with the Performance Standards.

The following documents were reviewed by MIGA:

• information on the Project’s practices regarding the environment, occupational health and safety (OHS), human resources, and community engagement activities dated from 2018 to present (including environmental policies, environmental approvals, environmental impact matrices, environmental monitoring plan, emergency response plans, pandemic management plans and Covid-19 updates, occupational health and safety matrices, internal regulations, Code of Conduct),
• an Environmental and Social Due Diligence Report prepared for the Lenders (November 2018), and
• a Human Rights Risks and Impact Screening Report (final draft) prepared for the Lenders (March 2019).

In addition to reviewing the above documents, due to the Covid-19 global pandemic, MIGA held teleconferences over several days in April 2020 which included discussions with key E&S staff and management  As part of due diligence, MIGA liaised with proposed Guarantee Holders and Lenders which are supporting the Project and considered the findings of their due diligence and site visit.

MIGA’s due diligence review took into account the environmental and social management planning process and documentation for the Project, and identified gaps (if any) between these and MIGA’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable time period, are summarized in the paragraphs that follow and in the Environmental and Social Action Plan (“ESAP”) attached to this ESRS.  Through the implementation of these measures, the Project is expected to be designed and operated in accordance with the Performance Standards.

Key E&S issues associated with the Project’s business activities are summarized in the paragraphs that follow.

PS1:  Assessment and Management of Environmental and Social Risks and Impacts

Environmental and Social Assessment and Management System:

Surpapel Group acquired or established the companies in 2012 and has since carried out modernization efforts over the last few years both at the Surpapel mill (about ten years old) and the Procarsa plant (over fifty years old). Surpapel Group and the three companies are formalizing their respective E&S management systems to ensure they are in line with requirements of the Performance Standards (PSs), as per the ESAP. The companies are seeking the following certifications of their respective management systems in 2020:

• Surpapel:  International Standards Organization (ISO) 9001: 2015 (quality management system), 14001: 2015 (environmental management system), and 45001:2018 (occupational health and safety management system)
• Procarsa:  ISO 45001: 2018, 14001:2015
• Repapers:  ISO 9001:  2015 (supply chain).

Procarsa is also in the early stages of developing an energy management system, and is not planning to seek certification.

Fiber and paper for the Project is a mix of recycled and virgin sources.  The Project has implemented systems and verification practices to identify where its primary supply is coming from and the habitat type of this area; to provide for ongoing review of its primary supply chains; and to limit procurement to those suppliers that can demonstrate that they are not contributing to significant conversion of natural and/or critical habitat.  Surpapel’s primary fiber supply from the United States is audited as part of the chain of custody certification requirements under the Forest Stewardship Council (“FSC”) mix label. FSC certification verifies that materials are from responsible sources.  Surpapel is only using recycled materials to produce its paper.  The US-imported paper rolls used by Procarsa is FSC certified.

The Project has implemented a food safety certification (under the Food Safety System Certification 22000) for production lines producing boxes for food transport.  Procarsa complies with all requirements and guidelines of customers of the food industry ensuring the use and consumption of raw materials for food safety.  Procarsa also has certification regarding compliance with drug trafficking regulations.

Policy:

The companies have recently adopted E&S policies which are currently being socialized with employees and other stakeholders.  The policies clearly articulate the E&S objectives and principles that guide the companies to achieve sound E&S performance and identify the individuals who will be accountable and responsible for implementation.  The policies include a commitment to comply with local and international applicable laws and regulations, and where relevant, international standards such as the Performance Standards.  Repapers’ policy also addresses suppliers.

Identification of Risks and Impacts:

Potential environmental and social impacts have been identified and appropriate mitigation measures have been identified.  Environmental and social monitoring programs have been developed and are implemented. A human rights risk and impact screening was carried out for the Repapers supply chain and is discussed under PS 2.

A high-level climate risk screening was carried out based on publicly available information and climate change projections for the Project’s location. Key potential changes in climate include future increased mean annual temperature, increased mean annual precipitation, and increases in the frequency and intensity of extreme rainfall events. Data also shows an increased trend in drought/wet conditions under high and lower greenhouse gas emissions scenarios for Ecuador. Further, extreme heat could also impact the energy demand for cooling, while increasing the pressure on water resources for electricity directly generated from hydropower sources for the Project. Each company should consider implementing an adaptive management approach for their ESMS consisting of long-term monitoring and assessment of climate-induced risks to ensure that relevant operational plans and procedures, including emergency preparedness and response, health and safety, and energy management are periodically revised and aligned with the local emergency response protocols for identified climate-related hazards.

Management Programs:

The goal is for each company to have its own ESMS.  Each company has already developed many of the relevant management plans and policies such as a waste management plan, energy management policy, greenhouse gas accounting plan, community health and safety plan, etc.  Plans are yet to be consistently implemented across the companies (see ESAP).

Organizational Capacity and Competency:

Each of the companies has a dedicated internal committee to assess all occupational health, environmental and labor risks.  An organizational structure for each company defines roles, responsibilities and reporting lines, including for E&S responsibilities.

Each of the companies has a dedicated team to oversee E&S management, with ultimate responsibility resting with the relevant General Manager.  The Project will review its E&S resources and capacity to ensure sufficient personnel to oversee the E&S management and monitoring.  Surpapel Group has established ongoing environmental, health and safety (“EHS”) training programs and training plans are updated on an annual basis.

Emergency Preparedness and Response:

All companies of Surpapel Group have site-specific emergency preparedness and response plans (EPRP) to respond to emergencies (e.g., fires, accidental spills).  Surpapel Group has a pandemic management plan that is applicable to all companies. The HSE Manager at each company has the overall responsibility to implement the EPRP with the support of other departments.  Emergency drills are carried out annually to review preparedness and response for various emergency scenarios.  The Project has developed a pandemic management plan (dengue, coronavirus, and banana fungus), and is implementing measures in line with national guidance.

The Project has a fire detection system at all companies, and also a suppression system (sprinklers) at the Procarsa plant.  Fire hoses and water are available at all collection centers.

Monitoring and Review:

The companies have many monitoring and evaluation mechanisms in place and will review these plans to ensure alignment with MIGA’s E&S requirements (see ESAP).  Implementation of the plans is in progress.  Reporting to management on environmental and social matters occurs on a monthly basis.  Surpapel, Procarsa and Repapers submit annual environmental monitoring reports to the environmental authority and are in compliance with Ecuadorian environmental licenses.  The Project will incorporate World Bank Group effluent and emission limits into the ESMS (see ESAP).  Currently, the Project is slightly over the WBG effluent limits for biological oxygen demand and chemical oxygen demand, and emissions from the boiler (e.g., NOx). Where the project is exceeding the more stringent emission or effluent limit, the Project has committed to develop a corrective action plan to identify next steps and timeline to address exceedances. The Project will be required to submit annual monitoring reports to MIGA reporting on compliance with the Performance Standards (including host country compliance, updates on supply chain, etc.).

Stakeholder Engagement:

Procarsa developed a stakeholder engagement plan (SEP) and meets with representatives at least once a year.  Procarsa has carried out stakeholder mapping and the other two companies will do the same as well as develop their respective SEPs (see ESAP).  Surpapel Group works with a local non-governmental organization (Accion Solidarida Foundation) to coordinate activities with the nearby communities in the areas of health and education, sports activities, cultural activities, youth celebrations, and small businesses.  Stakeholder engagement plans will be developed for Surpapel and Repapers (see ESAP). The Project will review its existing SEPs to ensure its grievance mechanism is in line with PS requirements (see ESAP).

The Project informally shares E&S related information with external stakeholders.  The Project will formalize this process (see ESAP).

PS2:  Labor and Working Conditions

The Project employs approximately 955 staff within the three companies, with most workers coming from nearby communities. 

Working Conditions and Management of Worker Relationship:

The companies have implemented and communicated human resources policies and procedures to workers. The Code of Conduct addresses non-discrimination within their direct operations.  The companies comply with national legislation on wages, hours of work, overtime, rest days, vacations, etc.  The conditions of employment and worker’s rights are communicated to new employees during the induction process. The companies have developed plans which address drug abuse, sexual harassment, psycho-social risks, etc.  Given the COVID-19 implications and potential for reduction in productions and consequently impact on workforce, the companies will review their respective retrenchment policies and procedures to ensure alignment with PS 2 requirements and to discuss with relevant authorities/stakeholders, as per the ESAP.

The Project allows freedom of association and collective bargaining.  At this time, there are no unions in the three companies. 

The internal grievance mechanism will be reviewed to incorporate additional detail responding to grievances and ensuring potential security-related grievances are included (see ESAP).

Protecting the Work Force:

Child labor and forced labor is prohibited within the Project’s direct operations.

Occupational Health and Safety:

The Project followed the methodology in the Colombian technical guide 45 (GTC 45) to identify hazards and assess safety and health risks at work.  Hazards and health and safety risks have been identified for each process at each of the companies.  Examples of key hazards include exposure to noise, chemicals, dust and high temperatures and humidity; crushing; working at heights; and muscle strain. Based on the risk assessments, the Project has implemented design mitigation where possible and carried out training to ensure employees are aware of risks.  In addition to installing and maintaining machinery guarding and providing personal protective equipment, risk control measures have been implemented and safety procedures have been developed, including approaches for incident and accident investigation.  A medical clinic is available onsite for employees at Procarsa and Surpapel.  None of the companies reported accidents or incidents in 2019.

Workers Engaged by Third Parties:

The Project extends its health and safety requirements to contractors, documenting these requirements in contracts.  The Project monitors third-party compliance.

Supply Chain:

Based on the Human Rights Risk and Impact Screening report, Ecuador has a well-developed legal framework to facilitate the active participation of individuals and small-scale entrepreneurs in the recycling of solid waste streams. The national and municipal legislation primarily focuses on issues of safety, legalization, fomenting opportunities and facilitating efficiency of separation.  Ecuador has significant challenges at a national level to deal with a range of rights.  Of relevance to the recycling sector are ongoing challenges with child labor and a high level of gender-based violence; 6 out of 10 girls and women have experienced it, and 1 of 4 have experienced sexual violence, and Ecuador has a problematic number of femicides in which women are killed for being women (Human Rights Watch 2018).  Child labor (18 years) and forced labor are prohibited by law, however limited resources and limited presence of the State in parts of the country hamper the implementation of these laws. Child labor has been reported as high as 25% of children in some provinces of Ecuador; most work in agriculture followed by trade and manufacturing.

The Project (Repapers) purchases recycled paper (e.g., office paper, old corrugated containers and other types of cardboard) through a complex supply chain which includes formalized wastepaper collection from paper product users, as well as a small percentage coming from the informal sector. Repapers only purchases directly from Tier 1 businesses with whom they have a direct commercial relationship and from whom the majority of recycled paper is supplied (primary supplier). Tier 1 suppliers include large recycling companies (up to 100 tons) with formal operations; small businesses (up to 35 tons) with formal contracts which collect materials from businesses, low tonnage depots, families and waste collectors; depots (up to 20 tons); and smaller depots (up to 5 tons); association of grassroots recyclers which are formally structured groups with members who collect directly from the street; trucker suppliers which sell cardboard without any supporting infrastructure; retail which directly sells packaging material, and schools which sponsor paper drives. Tier 2 indirect suppliers provide the Tier 1 direct suppliers with additional materials and includes companies, small depots, associated recyclers, families, itinerant recyclers, and municipal dump recyclers.  Tier 3 suppliers provide Tier 2 indirect suppliers with additional recyclable material and include families, itinerant recyclers, and municipal dump recyclers. 

This relationship with Repapers has produced positive effects for Tier 1 suppliers due to the support of Repapers. Tier 1 suppliers have become more formalized, and with Repapers’ technical assistance, they have improved the quality of their product, improved pricing and processes, and increased transparency in the commercial relationship. Tier 2 and 3 suppliers, which supply to Tier 1, have also benefited indirectly from the restructuring and collaborative efforts developed with municipal governments to improve the conditions experienced by the street and open-air dump recyclers. 

Through a human rights risk and impact screening of Repapers’ supply chain (Tiers 1, 2 and 3 suppliers), the Project is aware of labor conditions, health and safety for workers and child labor impacts related to Tier 2 and 3 suppliers. The Surpapel Group believes that the majority of paper and cardboard supplied by Tier 1 comes from institutional companies, with a smaller portion from Tier 2 and 3 suppliers.  The Project has committed to carry out further analysis of its supply chain to confirm this and to continue mapping and assessing its supply chain in order to determine gaps needing to be addressed to comply with Ps 2 child labor (paragraph 21), forced labor (paragraph 22), and significant safety issues related to supply chain workers (paragraph 28), and PS 6 (paragraph 30), recognizing Repapers has a direct relationship and influence with Tier 1 suppliers to ensure compliance with the applicable Performance Standards.

The Project plans to minimize and avoid child labor in its supply chain by continuing to develop a responsible supply chain and to broaden its relationship with over 600 Tier 1 suppliers.  The Project reports that 95% of Repapers Tier 1suppliers have remained consistent over the past six years, with little material purchased from others.  Repapers is also collaborating, where possible, with municipal and national governments as well as civil society groups on various initiatives affecting parts of the supply chain where it has little leverage.  The Project plans to continue minimizing and avoiding child labor and forced labor in its supply chain (focusing on primary suppliers) through these additional measures (as reflected in the ESAP):

• Map its primary supplier / Tier 1 supply chain (and build internal capacity to do so);
• Develop and implement supplier agreements with primary suppliers in line with PS requirements (e.g., to not support harmful child labor or forced labor (with encouragement that suppliers also include this requirement in their own supply contracts), health and safety measures, etc.);
• Develop initiative to support Tier 1 suppliers to extend good practice and fair pricing to their suppliers;
• Design and implement a training program on health and safety at Tier 1 suppliers;
• Monitor status of suppliers; and
• Develop screening model.

Supply chain management will be addressed as part of the sustainability goals of the Project and will be overseen by a newly created position and assisted by an external party.  The Project will review its efforts regarding responsible supply chain to determine if further practical measures can be taken with regards to primary suppliers and their supply chain.  As per the ESAP, policies, systems and processes will be developed and implemented to monitor sustainable business practices for both existing and future supply chains.  MIGA will continue to receive updates from the Project on this issue as part of the annual monitoring report and an independent audit of the supply chain policies, procedures and programs will be carried out. 

PS3:  Resource Efficiency and Pollution Prevention

The Project has committed to meet current relevant World Bank Group (“WBG”) Environmental, Health, and Safety (EHS) Guidelines and will incorporate relevant effluent and discharge parameters into environmental monitoring programs and procedures (see ESAP). 

Resource Efficiency:

Surpapel Group manufactures pulp from recycled paper and cardboard through a mechanical kraft process.  Since 2017, Surpapel Group has implemented numerous operational measures leading to improvements in energy and resources efficiency across their operations. Improvements have resulted in the reduction of energy consumption and GHG emissions. In 2018, Surpapel implemented key measures to improve the steam and condensate systems in the recovery boiler serving the paper manufacturing process.  Based on these improvements, Surpapel has been able to reach reductions in specific fuel consumption by 10 gallons of fuel per ton of paper produced and in the direct reduction of 20,000 tCO2e/yr estimated for a total production of 400 tons of paper per day. Further, Surpapel Group has also implemented additional energy savings measures, including for example, the replacement of electric motors of various machines with new efficient ones, modifications to operational procedures to stabilize current spikes in machinery during on/off cycles, and investment in process automation to reduce energy consumption. Both Procrasa and Surpapel have also replaced their obsolete lighting systems with LED lighting technology to meet illumination requirements while reducing electricity consumption.  In 2018, the Project Enterprises carried out a water consumption analysis and a comprehensive assessment of the water supply system with the aim of reducing consumption and correcting leaks in the supply network. Detected leaks were repaired, meters replaced and new ones installed as necessary, and staff were trained on water saving measures. Further reductions in water consumption have been achieved by reusing the water treated in the Membrane Biological Reactor (MBR) plant, in the paper mill as input process water.

Greenhouse gas emissions:  In 2018, gross operational greenhouse gas (“GHG”) emissions for Surpapel, Procarsa, and Repapers totaled 63,070 tons of carbon dioxide equivalent (“CO2e”) per year (“tCO2e/yr”).

Pollution Prevention:

During operations, air, noise and odor are mitigated through standard pollution prevention and control measures.  Water-based glues and non-toxic inks are used at the Procarsa plant.  Surpapel has implemented mitigation measures for noise reduction at fixed sources; however, there is a monitoring point which is above the standard at night due to the monitoring location beside the neighboring company.

Wastewater from Surpapel is treated by a recently constructed membrane biological reactor, which is comprised of primary treatment with a dissolved air flotation, then an aerobic biological process, and followed by ultrafiltration with submerged membranes.  Treated water is then reused in the process and there is no discharge.  Additional process water is sourced from groundwater and treated by osmosis before use.  Sludge from the water treatment is sent to the municipal landfill as it is non hazardous.  

Temporary storage of chemical and hazardous waste is in locked warehouses that comply with environmental regulations (secondary containment, impervious floor, ventilation, signage, etc.) outdoors.  Approved third party recyclers and waste haulers are contracted to dispose of hazardous waste. 

PS4:  Community Health, Safety and Security

Community Health and Safety:

The Project is located in Duran on a relatively flat site and only 50 meters above sea level.  Some localized flooding occurs during heavy rains combined with high water in the nearby River Guayas; however the mill, plant and warehouses have not been impacted.  The Brisas de Santay (approximately 365 people) and Brisas de Procarsa (approximately 465 people) communities border the western boundary of the Project site in Duran.  Heavy truck traffic related to the Project accesses the site through major roadways and does not pass through communities. The Project sprays its site as well as sprays in these communities to reduce dengue risk and tries to drain any standing water. 

The Project is also managing and monitoring potential community health and safety impacts related to dust, odors, vibration and noise, chemicals.  The Project’s environmental and social management plans include procedures and mitigation measures to address these impacts.

The companies under Surpapel Group have carried out risk assessments to identify key risks, including community health and safety risks related to the Project.  The companies undertake periodic inspections of equipment integrity and staff are trained to operate all equipment under the standard operating procedures. 

Emergency response drills are carried out at all Project sites and fire inspections are carried out annually by the respective fire departments.  Communities will be involved in future emergency response drills (see ESAP).

Security Personnel:

All sites are fenced and have controlled access points and a third-party security provider has been contracted.  The Project will carry out a security risk assessment and based on the findings, will implement a security management plan in line with PS 4 (see ESAP).

The documentation listed below is available electronically as PDF attachments to this ESRS at www.miga.org. 

• Surpapel Group Environmental Impact Matrix (2019) (Spanish)
• Surpapel Environmental Impact Matrix (2019) (Spanish)
• Procarsa Environmental Impact Matrix (2019) (Spanish)
• Repapers Environmental Impact Matrix (2019) (Spanish)

The above documentation is also available for viewing at the following location:

• Km 6.5 vía Durán-Tambo, Durán, Ecuador

Questions can be directed to Damian Baeza, General Manager of Procarsa, damian.baeza@procarsa.com.ec. +593 987239888.

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MIGA supports its clients (as defined in MIGA Policy on Environmental and Social Sustainability) in addressing environmental and social issues arising from their business activities by requiring them to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities.

In addition, Affected Communities have unrestricted access to the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for MIGA. The CAO is mandated to address complaints from people affected by MIGA-guaranteed business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of MIGA.

Independent of MIGA management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of MIGA’s environmental and social performance through its compliance arm.

Complaints may relate to any aspect of MIGA-guaranteed business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of a MIGA-guaranteed business activity. Complaints can be submitted to the CAO in writing to the address below:

Compliance Advisor/Ombudsman
International Finance Corporation
2121 Pennsylvania Avenue NW
Room F11K-232
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400
E-mail: cao-compliance@ifc.org

Broad Community Support is not applicable for this Project.