There are multiple challenges facing consultants in upgrading Environmental and Social Impact Assessments to international standards, writes Mark Wilson
To secure international finance for a power project, the Environmental and Social Impact Assessment (ESIA), prepared locally in the project’s host country, will more often than not need upgrading to comply with the requirements of the lenders (banks) financing the project.
The majority of international lenders require the project’s ESIA to comply with international standards, e.g., the International Finance Corporation (IFC) Performance Standards and Asian Development Bank (ADB) Safeguards.
Unfortunately, a number of challenges can arise when upgrading a project’s ESIA to international standards. Without appropriate management, difficulties or delays in obtaining lenders’ approval, and therefore achieving financial close, are inevitable.
Six challenges face consultants: the risks associated with translating ESIAs into English; dealing with time pressures around financial close; dealing with insufficient data in the original, local ESIA; understanding requirements at an early stage; ensuring locals get a fair deal; and the need for additional studies.
Lost in translation
A project’s sponsor will appoint an international environmental consultant to upgrade their local ESIA to international standards. This appointee will seek to understand the ‘gaps’ in the local ESIA relative to the international standards the project is required to comply with.
This gap analysis often requires a translation of the original into English. Often this task is given to an interpreter who is not familiar with technical terms used in the document, potentially leading to a misinterpretation of the results. Environmental consultants should try and engage a local partner familiar with the type of power project to support with translation and other aspects of the study that depend on the results of the gap analysis.
Following the gap analysis, the scope of work needed to upgrade the ESIA should be fully understood. As it is upgraded to achieve financial close, there is often time pressure from the outset to deliver the upgraded ESIA Report to the regulatory authorities and lenders for approval. This can be challenging if the gap analysis deviates significantly from international standards, requiring more time than originally envisaged.
For certain lenders, the ESIA Report will be publically disclosed on their website prior to their board review meetings. The period of disclosure will be dependent on the project’s categorization.
If multiple lenders are involved in the same project, it is important to agree on the project’s categorization as early as possible; this may require some preliminary studies to help define it. This is particularly important when multiple lenders are involved, as their different disclosure periods could significantly impact the timeframe of financial close. For long public disclosure periods, it is recommended to agree with the specific lender on the content of a preliminary ESIA, which can be used for the purpose of public disclosure. The preliminary ESIA can then be supplemented with the complete upgraded ESIA Report on completion.
Baseline data collection
A typical example of a gap which can have an impact on the overall timeline is insufficient baseline data used in the local ESIA. This often requires the environmental consultant to undertake further field work, for example to collect social data to use in the social impact assessment, which is not considered a strict requirement in some local regulations.
In addition, the baseline data from the local study may become out of date if there is a significant time gap between when the local ESIA Report was produced and the start of the upgraded ESIA.
Identifying the baseline monitoring programme at the earliest opportunity is therefore critical to understanding the timeframe for completing the upgraded ESIA Report. There may also be a requirement to collect baseline data for more than one season, which would significantly affect the overall timeline.
It may be possible to agree with the lenders that an addendum environmental report for the additional seasons be included as a requirement in the project Environmental and Social Action Plan (ESAP), and therefore submitted following financial close.
One of the key challenges in baseline data collection is obtaining reliable data, since baseline surveys are often undertaken by third-party consultants with their own local equipment. The local consultant may interpret results differently, resulting in ‘duff’ data being recorded.
Baseline data should be as accurate as possible, as the results of the baseline monitoring influence the environmental studies to follow. For example, if the equipment for monitoring air quality records incorrect data, the results might ultimately require the project to (unnecessarily) adopt more stringent stack emission limits.
It is also essential that the local consultant is supervised by others with knowledge and experience of the monitoring being undertaken. There will always be some outliers in monitoring data but these can be easily identified if the monitoring has been managed correctly.
Understanding the requirements
The way in which some international standards are written can lead to a difference of opinion on the meaning of certain requirements, and on what needs to be presented to demonstrate compliance.
There is a risk that the upgraded ESIA Report could go through a number of iterations during the lender’s review, impacting the schedule of financial close. The resulting cost impact on the sponsors and environmental consultant might then require additional work to be completed. It is therefore best practice to agree the scope and specific methodology of the upgraded ESIA study with the lenders prior to commencing studies and hold progress meetings with the lenders at specified milestones to outline work completed to date and preliminary results.
Ensuring a fair deal for locals
Land acquisition can often be led by governments, whose procedures for displacement (physical and economic) may not be in accordance with the international standards required for the project.
This can be difficult for the sponsors to manage, as although the lenders will require the project to comply with international standards, the sponsor may not want to be seen as interfering with government processes.
Therefore, the sponsor should work actively with the government, social experts and local partners to understand the host country’s land acquisition process. A framework Resettlement and Livelihood Action Plan, which identifies the gaps between the government process and international standards, can then be prepared in consultation with the lenders. Hopefully, the sponsor and their support team of experts can identify which gaps they can address in order to finalize a plan that meets the requirements of the lenders.
The need for additional studies is generally a requirement. The following studies in particular often need to be addressed in order to meet international standards:
à¢€¢ Associated Facilities Assessment:
Associated facilities are those that are not funded as part of a project, but required by it, for example transmission lines and gas pipelines associated with power projects. For transmission lines, it is often the case that the sponsor is only responsible for part of the transmission line route and the government is responsible for the remaining part. It is therefore crucial to have a clear understanding of not just the project components, but also the project’s associated facilities to ensure the area of influence for the environmental and social study is appropriately selected. This includes associated facilities that may not fall under direct responsibility of the sponsor.
à¢€¢ Cumulative Impact Assessment:
The assessment should also consider impacts from existing, planned, or other reasonable defined developments. For power projects, this normally includes consideration of all gaseous emissions within the same air shed, noise, traffic, and other social impacts from projects in the same area of influence. It is therefore important to determine the projects for cumulative assessment at the outset, as this will also define the area of influence for the new environmental and social study.
à¢€¢ Greenhouse Gas (GHG) Assessment:
The quantification of GHG emissions for the construction and operational phase is often a requirement of international standards. The GHG assessment should include direct emissions from the facilities owned or controlled within the physical project boundary (‘Scope 1’ emissions) and indirect emissions associated with the off-site production of energy used by the project (‘Scope 2’ emissions). The Scope 1 GHG emissions calculation is based on international and any other applicable guidelines. For Scope 2 the GHG emissions calculation is based on tools provided by the GHG Protocol, which requires entering information into a spreadsheet that automatically calculates the CO2 released.
There are of course many other challenges in preparing international ESIAs, such as identification of significant impacts and incorporating last-minute design changes.
There are also unique challenges in every project. However, implementing the lessons learnt from challenges experienced in the past should result in a much smoother ESIA process for the environmental consultant/sponsor and a high quality ESIA report that meets both the regulatory and international requirements.
Mark Wilson is Senior Environment Consultant for Thermal Power at Poyry. www.poyry.com