14 54 05 01 0 ' l -a-202 62 ' l ' l615 VP IDB I • INTER-AMERJ'CAN DEVELOPMENT BANK • WASHINGTON o c 2 os77 EXEC UTIVE OA BLE At OFIE SS VIC£ PRE SICIENT INTAMBANC Washington April 25 2003 Mr Prulip Merrill Chainnan and President Export Import Bank of the United States 811 VermontAvenue N W Washington DC 20571 Dear Phil Fo11owing on our previous conversation I wanted to share with you with more detailed information about the IDB's analysis of the environmental and social aspects of the Camisea project As you are aware we are consideri·ng participating in the financing of the gas and liquids transportation downstream component of the overall Project thal also includes the gas field development upstream ' component and a gas distribution component The Camisea Project will represent an important transformation in the energy matrix in Peru as it will make gas available to industrial and rc sidential custom s Nevertheless as you know the Project is located in areas of extremely rich and diverse environmental· and social characteristics that warrant very special atte11tion and could be significantly negativc ly impacted if the Project is not properly developed constnlcted and operated Present y the IDB environmental and financial due-dilig1 Dce of the Project is well advanced We shall determine the Project acceptability or feasibility in terms of environmental social health and safety and labor aspects bused upon an Environmental and social due-diligence We shall then decide if we can finance the Project based upon a review by our Loan Committee Environmental and Social hnpact Couunittee and ultimately by our Board of Executive Dfr-eotors The environmental and social due-diligence includes a detailed evaluation of the proposed project en vironmental social and health and safety assessments plans and procedures to ensure that all project-related impacts and risks are adequately rxrltigated and controlled As necessary the duediligence identifies the necessary project-specific recommendations e g • mitigation measures and or monitoring programs to mitigate properly control or monitor project environmental social or health and safety impacts risks or liabilities and enhance the enviTonmental and social sustainability of the Project In the ·case that the Project is approved we would develop and incorporate into our legal documentation Prnj-ect-specific environmental social health and safety and labor tenns and conditions W-e would also design and implement -a plan to supervise monitor the environmental social and health and safety m 'Peds of the Project during execution Giv en the history sensitivity and complexity of the environmental -and soc-ial aspects associated with the Camisea Project we have developed and are implementing a -specific detailed approach to the Environmental and Social Due-Diligcnc-e Examples of ·some specific actions that have been implemented by the IDB in order to improve the environmental and social sustainability of Camisea Project are listed below • __ I While the IDB is only considering financing for the downstream portion of the Project our e T1vironmental and social due-diligence is evaluating all three components of the Project I 05 01 03 14 ·55 'lr202 623 3615 VP IDB 2 • _ -J Our environmental and social technical teams have already made several visits to the Carnisea Project area of influence iii order toperform site recomi sance obtain additional information establish contacts with Project stakeholders e g indigenous communities directly affected property owners NGO's governmental authorities etc- and become familiar with the euvironmental social and health and safety aspects of the Camisea Project The f rst site visit was condocted in April 2002 A detailed reconnaissaµce site visit was performed by t11e IDB team of experts URS consultants 1 and CAF experts 2 from May 9 to 17 2002 Subsequent site visits occun-ed in June July August 13 IDB Public Consultation Meetings September October December of 2002 and January 2003 • The IDB developed and implemented a public consultation program in consultation with indigenous organizations and national and international envil onmentalists 'Ibis program was implemented in addition to those public consultation activities already conducted by the Project Companies and the Government of Peru GOP The program has included numerous meetings and discussions with nongovernmental organizations both local and international indigenous organizations and other Project stakeholders In August 2002 the IDB held 13 public meetings 7 in native and rural communities in the rainforest and highlmds and 6 in urban areas mostly concentrated along the coast of Peru and between Lima and Cusco In addition on October 24 2002 the IDB held a similar meeting here in Washington DC The objective of these meetings was to provide an opportunity to inform stakeholders about Project activities and for the IDB to n ceive input and opinions regarding the environmental social and health and safety aspects of the Camisca Project • We have implemented independent environment al and social monitoring system of the Camisea Projt ct dUl ing the due-diligence process in comparison to all other projects in which IDB monitoring commences after project approval and financial closure and has required that the results from the TGP and P uspetrol independent environmental and social monitoring be made available to project stakeholders including local populations and non-governmental organizations The environmental and socfal due-diligence is supponed by short-term consultants an outside independent environme tal and social consultant company URS Inc and a senior international consultant former Chairman of Nature Conservancy International AleX3 I1dcr Watson As part of our environmental and social due-diligence the IDB has been actively working with the Camisea project companies to develop and implement a series of measures and initiatives specifically to address idenlified concerns and issues and to improve the 1mvlro11mental and social viability and sustainability of the Camisea Project These environmental and social measures in itiatives and improvements have already benefited the Camisea Project Other examples of the adclitionaHty of our Bank's involvement in the Project are listed below • Transportadora de Gas de Peru TGP downstream component project company has developed more specific and detailed environmental social health and safety management plans procedu res than contained in the lownst'l'eam EIA • There has been improved coordination between TGP Pluspetrol upstr-eam component project company and TracLebel distribution component project company with relation to the environmental management of the three components of the Projecl particular y in reference to procedures used in negotiating rights-of way and procedures used to control and monitor environmental social and health and safety issues 1 URS Inc is a specialized consulting finn reraincd by the IDB 2 Corporacion Andino de Fomento C AF a regional financial irutirution tl1at is ilso eo nsidering financing the do r-usrrcam c0mponen ofthr prnj6c1 togefocr 1 j1 h lb DE @002 I 14 56 05 01 03 1202 623 3615 VP IDB -- _ 3 • Pluspetrol further reduced the area for seismic activities in Block 88 specifically to reduce the probability of accidental contact with isolated indigerious groups living in ilie ' • Pluspe-µ-ol and TGP are implementing monitoring systems to improve and ensure compliance with the environmental and social management p lJlS · • Pluspctrol and TGP have contracted consulting fnms to conduct independent monitoring and audits of the environmental and social management plans • TGP has implemen-ted land-titling programs for the indigenous communities in the projeot's ' -rea of direct influence • TGP has contracted an international erQsion control expert to review the engineering designs procedures and execution dates of pemmnent and temporary measures to control erosion and sedimentation along the right-of-way of the pipeline and other work sites of the Project in ol'der to minimize risks o environmental degradation • TGP has made changes to the Project's right-of-way in order to a void impacts on archeological resources discovered during project implementation • TGP has revised its fluvial _and terrestrial transport policies and procedmes particularly between Kiteni and Kepasbiato in order to imp rove workers safety and the safety oflocal inhabitants __ TGP and Pluspetrol have made improvements in disseminating and making project information accessible to the public which includes rhe implementation of a web site with information on all thr components of the project www camise a com pe 11le IDB understands that it is necessary for the Environmental and social due-diligence Lo ddress all three cumponents of the Camisea Project exploration transportation and distribution in order to ensure that the imlirect and direct impacts and long and short-term effects of the -Camisea Project are properly addressed This approach has led to the identification of some potential medium to long-term negative effects a result of the Projc ct's implementation thnt may require GOP attention Accordingly the IDB has signed a loan with the Govenunent of Peru in order to implement institutional strengthening and environmental and social managemt nt support for the Project The objective of this program is a develop the institutional capacity of GOP entities directly involved in the inspection supervision and monitoring of the environmental and social impacts of the Project to co11aborate in setting up a regional environmental and social development fund for the Camisea Gas Project's area of influence and to adc h-css priority activities that are the GOP's responsibility and are intended to mitigate rhe Project's indirect negative environmental and social effects such as uncontrolled colonization and consequences to the indigenous peoples impacts on biodivt -rsity illegal logging land titling among others as We have been gratified by the spirit- of collaboration the Government of Peru has displayed in these undertakings The Govemment is in lhe process of implementing the activities supported by the program outlined above and ·can repa1t progr-ess suuh as _ ' • The Private Energy Investment Oversight Agency OSINERG and the Natural Resource Institute INRENA have subs antially enhanced their institutional and regulatory capacity to supervise and monitor the -execution of the Camisea Gas Project • The GOP has CI eated the Int-er-institutional Coon iination Commit-tee that has ·started the process of coordinating activities and -entities involved with the Pr-oject_ @oo _' _____ 'v Y---' ' J - - - - - -- --- -- -- --- - - - - v--------- 'v ----- ' ____ _ 4- 4' • ' • The GOP bas designated the Universidad Cat6lica of Peru as Ombudsman for the Camisea Project to address claims or concerns of the affected population • The GOP has taken initial actionii to miiigate and prevent certain medium and longterm impacts such as · a controlling access to the Lower Urubamba Zone bJ finalizing the legal protection of the Reserved Zone of ·the Apurimac in the Vilcaban1ba National Park and implementing lan d titling of the Community Reserves of the Pavlik Nikitine aqd Ashaninka c establishing the Machiguenga Sanctuary iri the area offiJe Pongo de Manique d enhancing the legal protection of the Kugapakori and Nahua Reserved Area including defining compensation models for land use by indigenous communities and the roles of the state and the commwri ties respectively e proposing an operational regulatory framewo-rk to govern the exploitation of natural resources i e hydrocarbon forest resources in the Camisea area which takes into consideration the protection of he biodiversity resources and the rights of indigenous people in the Lower Urubamba zone and f preparing an9 in1plementing a participatory sustainable development plan in the area of influence of the 'Project An economic environmental and social development fund is proposed to be established us ing royalties from the Cami sea Project along with contnbutions from the Project companies The fimd will help promote equitable dis1ribution of economic benefits raised by the Project to people in the area of influence of the Project I Duru1g the ID B's due diligence we hnvc coordinated closely with U S Export Import B in particular related to environmental social and health and safety 8 l -pects 'Ibis has included routine comntUllications briefings between staff sharing of documentation and infonnation ind coordination on the u e of URS Inc by both institution s for the environmental and social duediligence Wf J appreciate very much lhc spirit of teamwork that your colleagues have demonstrated during these co11sultations In addition we have also provided information concerning our involjVemeot in the Project and are in close contact with the US Treasury which is also doing an assessment of the environmental and social aspects of the Project as well as of the impact of the project on the Peruvian ei onor ny and on its energy matrix Given the sensitivity of the Project continued coordination with F x-hri Bank is important to us and I would propose that you and I kec p in touch regarding issues that may arise and the activities -and progress of-our respective institutions Several of our Executive Directors and I plan to visil the Project in mid-May If it is convenient V'lij h you perhaps we could spend a few mu1utes together prior to the trip to -compare notes and then I shall visit with you afterw-ards to brief you on our impressions Sincerely _ P Dennis E Flannery Executive Vice President cc Mr Enrique Tglc sias