Aceria del Ecuador C.A. (“Adelca”)

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Project Number: 
EC3897A-01
Expected Consideration Date by the Board: 
02/24/2015
Date Posted: 
10/17/2014
Company: 
Adelca y Adelca del Litoral S.A.
Sponsoring Entity: 
Not applicable
Financing Requested: 
US$30,000,000.00
Sector: 
Construction, Materials, and Fixtures
Environmental and Social Category: 
A
Location: 
Canton de San Francisco de Milagros, Provincia de Guayas (Ecuador)
Country: 
Scope Objective: 

Adelca’s project consists of the construction, development, and operation of a new state-of-the-art steel plant located in Canton de San Francisco de Milagro in the Province of Guayas, approximately 40 kms from Guayaquil. The steel plant will consist of a new running mill with installed capacity of 400,000 metric tons per year, a smelting plant with installed capacity of 400,000 metric tons per year, storage yards, shops, warehouses and supporting infrastructure. The project cost is estimated at US$156 million. The IIC loan of up to US$30 million– which is expected to be partially guaranteed by SACE S.p.A., the Italian export credit agency – will finance main equipment and machinery for the project.

Adelca, with more than fifty years of successful operation in Ecuador, is an integrated steel producer and one of the leading companies in the steel industry in the country. Adelca uses mainly steel based scrap in the smelting process to produce billets which in turn are used in its rolling mills to produce long steel products such as steel bars. Adelca, with more than 13 points of operations in Ecuador, distributes and commercializes its products mainly in the country. Adelca del Litoral S.A. is an Adelca’s subsidiary, created to develop the project.

The Project will increase Ecuador’s installed steel production capacity by 400,000 metric tons per year, including a new line of value added steel product (wire rod), which is currently imported. This will reduce dependence on foreign imports to meet national steel demand, and contribute to decrease costs, which will benefit many sectors of the Ecuadorian economy, in particular the construction and infrastructure sectors, but also the transport, energy and manufacturing sectors, since Adelca produces steel for use in products as varied as: construction components, suspension cables, wires, windows, doors, furniture, agricultural and security fencing, households appliances, cutlery, ornaments, tools,  toys, clips, screws, etc.

Among the largest projects in the construction and infrastructure sector to which Adelca has contributed or is currently contributing are: the new Quito airport (Quiport) and cargo center (Tababela), the Quito metro, bridges (including the international bridge Macará-Peru), roads and rings, a port, seven hidroelectric centrals, a wind farm, market centers and malls, hospitals, stadiums and recreation centers, a social rehabilitation center and a prison.

The use of scrap in Adelca’s casting process also contributes to the reduction of water and soil pollution risks due to the inadequate management of such metallic waste. Adelca was acknowledged in the magazine “Recyling Today” and complies with several certifications (ISO 9001, ISO 14001 and OHSAS 18001). The company is also a member of the Network for the Eradication of Child Labour, and in the last three years it has received several awards by the national government for its inclusion of disabled workers and, more generally, for its environmental and social responsibility in its operations.

Adelca buys raw material from more than 3,000 independent scrap merchants across the country that in turn provide jobs to approximately 7,000 people. The company has also established a program called the “Club de Recicladores” through which it provides loans to scrap merchants to buy scrap, as well as protective equipment and training.

The project will result in the training and employment of approximately 400 additional employees to operate the new plant, in addition to up to 180 jobs during the construction period. Adelca intends to hire a large proportion of the construction workers to become operators at the plant.

Environmental Review: 

Environmental and Labor Issues:

This is a Category A project according to the IIC’s Environmental and Social Sustainability Policy because it could result in potentially significant and diverse environmental impacts.  The IIC is focusing its environmental and social due diligence for the Project on Adelca’s plans to construct and operate a new foundry and scrap collection facility (the “Milagro Facility”).  In addition, the due diligence encompasses Adelca’s environmental and social management systems at the Company’s other principal points of activity, which include: an existing steel plant in Aloag (the “Aloag Facility”); a shipbreaking facility in Durán; and a network of twelve scrap collection and product distribution centers around Ecuador.

Environmental and Social Context

The Milagro Facility will be located in the Ecuadorian province of Guayas, in the Canton of San Francisco de Milagro, to the east of Guayaquil.  The surrounding landscape and economic activity is dominated by agriculture.  The poverty rate in the zone is very high.  The Milagro Facility will be built on approximately 66 hectares of land which is completely owned by the Company.  Previously, 45 hectares of the site were owned by a single banana plantation and the rest by small landowners.  None of the previous owners resided permanently on the property.  A minor river (Estero de los Monos) running along the border of a small portion of the site is used locally for irrigation and swimming.  Very little native vegetation remains along the river border in the Project area.  Industrial traffic will access the site via an existing, paved road from the city of Milagro, which is located approximately four kilometers away.  Water for project operations will be drawn from a deep aquifer accessed by an onsite well. 

Environmental and Social Assessment and Management Systems

Adelca has submitted a draft of the Milagro Facility’s Environmental and Social Impact Assessment (ESIA) to the Ministry of Environment (MAE) (see links below at the button of this page).  MAE will soon initiate a structured public consultation process based on the contents of the ESIA.  The Company previously undertook a consultation process during the ESIA’s scoping phase.  The IIC, with the assistance of an international environmental consulting firm, is reviewing and advising the Company on the development of the ESIA and associated management plans to ensure that the Project will comply with the IIC Environmental and Social Sustainability Policy.  After this review period, Adelca will update the ESIA, taking into consideration comments from the public and from the IIC, and resubmit it to MAE for final authorization. 

MAE previously authorized separate ESIAs for Adelca’s other principal activities, including: production of rolled and drawn steel products at the Aloag Facility; collecting and melting of scrap metal for use in the production process at the Aloag Facility; operation of four of the Company’s twelve scrap collection and product sales centers, distributed throughout Ecuador (the remaining eight authorizations are in process); construction and operation of a landfill for disposing of production wastes generated at the Aloag Facility; and shipbreaking and scrap collection in Durán.  As part of its environmental and social due diligence review of the Project, the IIC is verifying that Adelca is in possession of all environmental permits required by Ecuadorian authorities.  As a requirement of the IIC’s Environmental and Social Action Plan (ESAP) for the Project, Adelca will be required to undergo an independent audit of its existing facilities and address any environmental liabilities that may potentially exist.

Adelca operates under an Integrated Management Policy (Política de Gestión Integral) which lists the following as key corporate principles: the health and safety of Adelca employees; the conservation and preservation of the environment; and Adelca’s commitment to corporate social responsibility.  Adelca operationalizes these principles through various corporate policy documents, including the Employee Code of Conduct and the Internal Occupational Health and Safety Regulation.  The latter document contains the Company’s detailed emergency and accident response procedures, as well as its health and safety procedures.

Environmental and Social Management Plans (ESMPs) specific to the Milagro Facility are currently being developed for the pre-construction, construction, and operation phases of the Project.  The plans are being developed under guidance from IIC environmental and social specialists and, once completed, will be reviewed by the IIC as part of the environmental and social due diligence process.

The Company has obtained various certifications, including the following:  Certification S2M, an international program that recognizes and promotes corporate social responsibility; ISO 14001:2004, which specifies requirements for an environmental management system; and OHSAS 18001, an international occupational health and safety specification.

Labor and Working Conditions

Adelca currently has 1,370 employees.  Of these, approximately ten percent are women, and women hold high level posts, including the following: personnel manager, treasurer, quality manager, finance and accounting manager, social responsibility manager, and collections manager.  It is expected that the construction of the Milagro Facility will require up to 180 employees, and that during operation (at initial production levels) the total number of employees will reach 400.  Adelca will preferentially hire employees from the Project’s direct and indirect areas of influence.

Adelca’s Human Resources Department provides each new employee with an individual orientation, during which the contractual relationship between the employee and the Company is explained and a basic introduction to the environmental, health and safety policies of the Company is presented.  At that time, training needs specific to the role of the employee are identified and a time is scheduled for the training to be given.  Once administered, such trainings are recorded and filed systematically.  Adelca requires all employees to undergo numerous additional trainings throughout the year according to a pre-set schedule, with each event covering a distinct environmental, health and safety topic. 

The Code of Conduct clearly states that the Company does not tolerate discrimination based on gender, race, color, nationality, age, religion, sexual orientation, or disability in its hiring practices or working environment.  This document also states the Company’s prohibition of the use of child labor, and its commitment to ensuring a safe and healthy workplace.  Adelca is a member of the Network of Businesses for an Ecuador Free of Child Labor. 

Resource Efficiency and Pollution Prevention

It is estimated that the annual electricity consumption of the Milagro Facility will be approximately 220,000 – 250,000 kWh.  Ambient air quality is currently monitored in the surroundings of the Aloag site in accordance with the facility’s environmental management plan (approved by MAE).  Air quality there is consistently reported to MAE as being compliant with Ecuadorian standards.  All hazardous waste products are sent to government authorized facilities for treatment and disposal.  The Company’s current handling of liquid and solid waste products, and the processes in place for mitigating potential contamination of soil, air and water, are being assessed for compliance with the IIC Environmental and Social Sustainability Policy as part of the environmental and social due diligence for the project.    For the Milagro Facility, these themes are presented in the ESIA currently under review by MAE and the IIC.  Detailed measures to avoid and mitigate potential risks will be incorporated into the Project’s various environmental and social management plans, which will then also be reviewed by the IIC before being finalized.  The ESAP for the Project will contain requirements for Adelca to close any gaps in IIC policy compliance that might be encountered during these reviews.

Corporate Social Responsibility

In 2010, Adelca launched the program “Recyclers Club” (“Club de Recicladores”) to provide training, protective equipment, and performance-based economic benefits directly to individual scrap collectors. The Club currently has 118 members.  Since 2010, the Company has spent over US $2 million on corporate social responsibility activities overall.  Activities undertaken include, among many others, the following: support to local primary education, construction of a local sporting arena, and donations to various charities.

Monitoring and Compliance

Adelca will submit an annual report to the IIC summarizing the results of the implementation of its environmental and social management plans.  The Company will also submit regular reports on the fulfillment of the requirements included in the Project’s ESAP, so that the IIC may monitor continuous compliance with the Environmental and Social Sustainability Policy.  The IIC will confirm the information in these reports during regular site visits, which will include meetings with the company staff responsible for environmental and social management.

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