Project Description
Provision of two loans of up to US$70 million, in aggregate, to FE Indorama Agro LLC to support its capital expenditure and working capital needs.
Project Objectives
The project will support a significant private sector investment into the cotton farming sector in Uzbekistan. It will promote mechanised cotton harvesting and bring significant environmental and operational improvements including: (i) land levelling and alternative irrigation systems to optimise water use; (ii) effective application of fertilisers; (iii) upgrades of water delivery and melioration systems; amd (iv) improved crops stock management.
Transition Impact
ETI score: 82
The project is expected to strengthen competitiveness and enhance economic inclusion.
The project includes significant operational restructuring in crop farming to facilitate improved operational efficiency and aims to introduce internationally accredited standards similar or equivalent to the Better Cotton Initiative for sustainable cotton farming in Uzbekistan.
Moreover, the project will create new economic opportunities for young people through the establishment of new training programmes aligned with Uzbekistan's Education Sector Plan for 2019-2023.
The project will also enhance economic opportunities for the population in remote and rural areas, particularly women, by expanding local sericulture (silk cocoon production) activity and revamping early childhood education centres in collaboration with the Ministry of Early Childhood Education.
Client Information
FE INDORAMA AGRO LLC
FE Indorama Agro LLC is owned by Indorama Holdings B.V., a subsidiary of Singapore-domiciled Indorama Corporation Pte. Ltd. (IRC).
IRC is the holding company of Indorama Group, one of Asia's leading industrial conglomerates with wide interests in petrochemicals, fertilizers & related downstream businesses. IRC is wholly-owned for the benefit of Mr. S.P Lohia & his family. Indorama Group was established in 1975 in Indonesia. It is West Africa's largest producer of petrochemicals, including olefins, polyolefins, phosphoric acid, phosphate fertilizers, ammonia, urea & one of the world's largest producers of synthetic disposable gloves. Together with its associate, Indorama Ventures Public Company Limited, domiciled in Thailand, Indorama Group is the world's leading producer of polyester, polyester feedstock & man-made fibers. Its manufacturing activities are spread across 136 sites in 37 countries with a capacity of almost 24.5 million tons a year and annual revenue of over US$15 bn.
EBRD Finance Summary
USD 60,000,000.00
A loan of up to US$ 60 million to finance capital expenditure and a working capital loan of up to US$ 10 million in local currency (UZ Som) equivalent
Total Project Cost
USD 283,400,000.00
Up to US$ 285 million. US$ 185 million for capital expenditure and US$ 60-100m for working capital needs.
Additionality
The EBRD offers financing on terms not readily available in the local market. The Bank's presence also brings additional comfort to clients and investors by mitigating non-financial risks. The project also helps the company achieve higher environmental standards and strengthen capacity around attaining positive outcomes around gender and economic inclusion.
Environmental and Social Summary
Categorised A (ESP 2014). The Project was subject to an environmental and social impact assessment (ESIA) undertaken by international consultants in accordance with a Terms of Reference jointly agreed between the EBRD and the IFC. The aim of the ESIA was to identify the potential environmental and social impacts associated with the Project and to assess the Project against national environmental, health and safety, labour and other social requirements, the EBRD's Performance Requirements (the PRs) and IFC's Performance Standards. The ESIA was initiated through a Scoping Study and guided by a Stakeholder Engagement Plan developed in September 2019. The ESIA was released for public disclosure on 24 April 2020 on http://www.indorama-agro.com/news.php
Potential key direct adverse impacts associated with the Project identified through the ESIA include:
Legacy issues from government-led land acquisition to form the cotton clusters;
Potential continued use of forced labour in contracted farms;
Reduced employment in cotton farming;
Water availability and use;
Air emissions of, for example, dust, diesel emissions, fertilizers and pesticides aerosols from farming activities, and gin plants emissions.
Use of approved chemical inputs on farms.
The Company as on 31st March has approximately 3,200 employees for cotton production, 97 per cent recruited locally, from the two regions where the Project is located. About 162 people will be redeployed for the two ginning facilities and ten to operate and maintain the two worker accommodation facilities. Women currently occupy 7 per cent of all jobs, however, their representation varies significantly between the Project districts (4-9%) and the headquarters in Tashkent (27 per cent). The Indorama Group has a corporate level Human Resources ("HR") policy, Code of Conduct, and a Human Rights Policy, applicable to all its companies, including Indorama Agro. The Human Resources policy is generally consistent with the EBRD PR2 requirements. As a part of formalizing Indorama's position on gender-based violence and harassment, Indorama will develop specific policy provisions and procedures to prevent and address any potential instances of gender-based violence and harassment and publicize the requirements to all its employees, contract farmers and representatives of key suppliers.
Indorama Agro is committed to preventing all forms of child labour and forced labour in cotton production and harvest, including in contracted farms or any other of its operations. The mechanization of operations (including harvesting) in Indorama Agro's direct farms will facilitate the elimination of unacceptable forms of labour. To manage the risk of forced labour in contract farming Indorama Agro will operate a centralized hiring and oversight system for seasonal workers in cooperation with independent contracted farmers. A robust monitoring program was launched in 2019 that documented the absence of child or forced labour in the 2019 cotton harvest for Indorama Agro's direct and contracted farms.
To manage occupational health and safety (OHS) Indorama Agro will further develop current approaches and implement an OHS management system including recruitment of H&S Managers, delivery of OHS training programs, and standard operating procedures for use of farm machinery, storage and use of hazard materials, among others. This OHS management system will be based on good industry practice, such as ISO 45001, and will cover all elements of operations. Subcontractors will be utilised by Indorama Agro for a range of infrastructure elements and a management plan to oversee contractor OHS and labour practices will be implemented. As indicated in the Stakeholder Engagement Plan, Indorama will regularly provide information to and consult with communities, including through dedicated Community Liaison officers (CLOs), and adopt a formal and structured mechanism to address any community grievances in a timely manner. This community grievance mechanism will strengthen approaches to consultation and responsiveness to any potential communities' grievance on the E&S risks and impacts associated with its operations. Where construction and operation activities are located close to local communities, Indorama will establish a buffer of 20 meters between farm operations and residential areas in order to minimize any adverse impact, such as from the pesticide spraying and/or farming operations.
Land acquisition was required only for cotton and other rotational crop production - land for other project facilities (such as the gins, farm depots, administrative and residential accommodation) were bought from or allocated by government owned land bank and from private individuals with no land users affected. A government-led land acquisition for the Project was completed in 2018 following a consultation and negotiation process carried out by the local authorities (Hokimats). The land acquisition involved the voluntary termination of Land Lease Agreements (LLAs) with a total of 1,068 farms. Although all LLAs were terminated based on voluntary decisions of leaseholders, PR5 on Land Acquisition, Involuntary Resettlement and Economic Displacement is considered applicable. Economic displacement results from the loss of income from leased farms who terminated their LLAs, loss of permanent jobs for farm workers on farms with LLAs terminated, loss of seasonal jobs due to mechanization on Indorama Agro's direct farms, and limited loss of non-cotton land during the land consolidation process for a number of privately owned non-cotton farms. About 45 per cent of farmers terminating their LLAs were directly employed by Indorama Agro. Women tend to be the majority of seasonal workers in weeding, topping, chopping and harvesting (especially harvesting which contributes up to 50 per cent of the incomes of individual seasonal workers) and are less likely to have access to other sources of income during the rest of the year.
A Livelihood Restoration Plan (LRP) has been developed with focus on creating local income generating opportunities. The most advanced initiative is silk cocoon production, which involves expanding the existing local capacity and skills in silk farming. Other initiatives current being developed include: 1) support to cash crop farming (such as vegetables, fruits); 2) distribution of sewing machines to women in families affected by loss of income; and 3) rehabilitation of local childcare facilities to help stimulate women's labour force participation.
Stakeholder engagement has been undertaken in the process of decision making to reform the cotton sector in Uzbekistan, and extensively during the process of land acquisition and the preparation of the ESIA. The Stakeholder Engagement Plan (SEP), developed as a part of the ESIA process, documents stakeholder engagement activities conducted to date and outlines future engagement activities with focus on directly affected communities and provision of agronomic support and training to help improve farmers' productivity and profitability. Indorama will develop alternate plans for the ESIA disclosure period to ensure adequate consultation takes place, while taking account of mandatory, national COVID-19 restrictions and social distancing. Indorama Agro will develop a short and practical plan covering an alternative ESIA consultation strategy to be implemented during the 60-day disclosure period. This plan will be developed within 10 days after disclosure starts and will be published alongside the other documents in the ESIA disclosure package on Indorama Agro's and the EBRD's website.
To address the identified issues, an Environmental and Social Management Plan (ESMP) and an Environmental and Social Action Plan (ESAP) have been developed and released as part of the public disclosure package. The primary objective of the ESMP and ESAP are to provide environmental and social measures intended to prevent or mitigate potential adverse impacts of the proposed cotton farming Project. This includes:
Measures to ensure compliance with the laws and regulations of Uzbekistan
Measures to ensure compliance with the EBRD's PRs and the IFC PSs;
Recommended best practice for impact management, monitoring and reporting.
The primary management plans that are required, as appropriate for the project phase, include detailed plans for Air Quality Management, Water Resources and Water Quality Management, Waste Management, Transport and Traffic Management, Noise and Vibration Management, Occupational Health and Safety, Site Waste Management, Emergency Preparedness and Response, and Contractor Management. Social Management Plans include Livelihood Restoration, Human Resources, Contract Farmer Labour Standards and Stakeholder Engagement. In addition to the above, Indorama Agro is working to align its operations with Better Cotton Initiative (BCI) standards, which includes seven key principles covering crop protection, water use, soil health, biodiversity and land use, fibre quality, decent work and management. Alignment with the BCI system adds another level of assurance that E&S issues will be correctly managed within the Project. The Company is also required to create a dedicated environmental and social (E&S) department to develop and implement E&S management systems.
ANNEX 1: LATEST SITUATION WITH FORCED LABOUR (FL) RISKS AND STATUS OF GOVERNMENT LED REFORMS IN COTTON SECTOR
Main positive changes related to forced labour risks
The key positive developments related to FL risks in cotton sector over 2018-2020 are summarized below:
- In 2019, 1.75 million people were recruited for manual cotton picking, which accounted for 12.5% of the adult population (aged 18-50 years) in the country.
- As in the previous two years, the ILO confirms the absence of systematic child labour in cotton production in 2019. Schoolchildren and students are no longer recruited for cotton picking.
- ILO TPM suggests that no systemic forced labour occurred during the 2019 cotton harvest, but challenges remain with the implementation of the government reforms at the local levels.
- There was a 40% decrease in the number of people experiencing FL risks in 2019. However, the issue was still present in the cotton harvest, with about 102,000 people (5.9% of cotton pickers) experiencing risks associated with forced labour in 2019. ILO monitoring revealed that there still exist residual practices such as: (i) involuntary recruitment through institutions, companies, and mahallas; (ii) recruitment of soldiers that cannot be considered work of a purely military character, but rather seems to be a method of mobilising labour for purposes of economic development; (iii) referring to cotton-picking as "hashar", implying that participation is obligatory, and; (iv) collection replacing fees from companies and individuals to avoid participation in the harvest.
- ILO monitoring confirmed that wages have increased since the previous harvest. Wages varied from UZS 800 to UZS 1,400 per 1 kg of raw cotton in 2019, compared to UZS 700i1,300 in 2018. As in previous years, cotton is a significant source of income for Uzbek households: 39% of pickers said the wages were 100% of their annual cash income.
- The ILO TPM reveals that more instances of FL were recorded in some regions than in others. In particular, the greatest number of cases of mass recruitment or the presence of people on duty were observed by ILO monitors in the Syrdarya, Surkhandarya, Khorezm, and Tashkent regions. At the same time, 1,282 complaints related to forced labour were submitted through official feedback mechanisms during the 2019 cotton harvest. More cases were observed in the Jizzakh, Syrdarya, Sukhandaria, Namangan, and Tashkent regions. As noted in the report, indicators such as demand for labour and the availability of free labour can be used to predict the risk of FL in particular areas. The TPM report cites an index of availability of voluntary pickers, which is calculated based on official data, and which can be an indicator of FL risks at the district level.
Outcomes of the government-led reforms in cotton sector
There were significant changes in Uzbek legislation in 2019 that continue to change cotton-growing practices and reduce FL risks in cotton sector. On 6 March 2020, the President Shavkat Mirziyoyev signed a landmark decree on promoting the market-based principles in cotton production and cancelled the state order for the production of raw cotton (quota system), which was the main driving force behind the use of the forced labour in cotton production. The other important changes introduced to the cotton production through the presidential decree includes:
- abolition of the state-run procurement prices for raw cotton;
- creation of voluntary co-operatives of farmers (only in districts where no cotton/textile clusters were established;
- abolition of the state sponsored low interest loans to farmers for the production of raw cotton (except in regions where land is fully transferred to the cotton/textile clusters);
- changes in financing mechanisms of the cotton production (promoting financial independence of the cotton cooperatives and clusters over time) and;
- (e) liquidation of Uzpakhtasanoat JSC i the state entity responsible for pursuing the state policy in the field of cotton production, and transferring the gin enterprises to the cotton/textile clusters.
Equally important, the Upper Chamber of the National Parliament introduced the criminalization of forced and child labour in December 2019, and the new legislation was signed by the President in January 2020. The new law becomes effective in April 2020; no court cases were registered yet. The enactment of the new legislation may include the imprisonment for up to three years or correctional works of up to three years for offences related to child and forced labour.
Cotton/textile clusters as private sector driven cotton production
The cotton clusters have an increasing role in the production of cotton. In 2018, 13 clusters were established in Uzbekistan (one per region). In 2019, the number increased to 58, with more than 70% of cotton having been harvested by clusters. In March 2020, 89 clusters were registered; these clusters are expected to grow cotton in Uzbekistan in 2020 and onwards.
The ILO TPM report for 2019 suggests that working conditions in clusters are perceived to be better, while payment was about the same compared to what was paid by farmers[1]. It is commonly believed that the risk of FL might be lower in clusters, but no systematic assessment of clusters was carried out yet neither by ILO or other organizations.
Latest situation with CSOs and mass media
In 2018, the President Shavkat Mirziyoyev signed a decree on the increased role of civil society. It specified a number of areas that require improvements and sought to simplify registration and activities of non-governmental, not-for-profit organisations. However, the implementation of the decree was not smooth, with some CSOs facing bureaucratic hurdles and a lengthy registration process.
In 2019i2020 there was considerable progress observed with freedom of CSO activities and mass media in Uzbekistan. In 2019, several news outlets and human rights focused international CSOs had full access restored to them, including: Voice of America, Amnesty International, and Human Rights Watch, and etc[2]. In March 2020, the Ministry of Justice registered a US-based non-governmental group Mercy Corps and a local justice advocacy organisation Huquqi Tayanch[3].
To add to this, quite a few independent civil rights activists were involved in the ILO-managed TPM monitoring and otherwise participated in various advocacy activities against forced labour in 2019[4]. The monitoring and advocacy activities of activists were free and unhindered. The local media outlets reported actively on forced labour issues in 2019. Journalists and bloggers were encouraged by the government to report on forced labour cases critically[5].
Equally, the changes were observed in the focus of the mass media reports and CSO activities in relation to cotton production. In addition to the FL risks in cotton production in 2019, there was an increased emphasis on the labour conditions during the cotton harvest (people working without contracts and not receiving maternity benefits, women carrying heavy aprons, inadequate housing facilities)[6]. Such changes in rhetoric within CSOs and media outlets signifies not only significant progress related to the government-led reforms to end FL in cotton production, but also improvements of the situation with freedom of speech in the country.
[1] Source: ILO TPM, 2019.
[2] Ibid.
[3] https://eurasianet.org/uzbekistan-sparks-hope-with-registration-of-ngos
[4] Source: ILO TPM, 2019.
[5] Ibid.
[6] Source: http://uzxalqharakati.com/ru/archives/25658 https://labourcentralasia.org/ru/news/fermery-namanganskoy-oblasti-ne-khotyat-rabotat-v-khlopkovom-klastere-oni-schitayut-chto-teryayut-pravo-upravlyat-svoim-khozyaystvom/
Technical Cooperation and Grant Financing
The Company will benefit from Technical Cooperation (TC) funds of up to € 150,000 for the payment of costs associated with the environmental and social due diligence for the Project. The TC assignment will be delivered with a 30 per cent cost contribution by the Company. In addition to this, TC funds of up to € 75,000 will supply expert guidance on developing the required new training programmes for young women and men and enhancing the capacity of local early childhood education centres. The TC assignment will be delivered with a 15 per cent cost contribution by the Company.
Company Contact Information
Mr. Amit Jain
amit.jain@indorama.com
+998 71 233 2264
www.indorama.com
11/1 Amir Temur Avenue, Mirobod district, 100100 Tashkent, Uzbekistan
PSD last updated
16 Jan 2023
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If efforts to address environmental, social or public disclosure concerns with the Client or the Bank are unsuccessful (e.g. through the Client’s Project-level grievance mechanism or through direct engagement with Bank management), individuals and organisations may seek to address their concerns through the EBRD’s Independent Project Accountability Mechanism (IPAM).
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