PT Sarana Multi Infrastruktur Environmental and Social Management Framework

Transcription

1 PT Sarana Multi Infrastruktur Environmental and Social Management Framework 03 February 2017 Supported by TA 8484 INO: Sustainable Infrastructure Assistance Program - Technical Assistance Cluster Management facility (Subproject 1) - Asian Development Bank

2 Table of Contents Contents 1. INTRODUCTION ENVIRONMENTAL AND SOCIAL SAFEGUARD POLICIES AND OBJECTIVES ESS POLICY OBJECTIVES OTHER APPLICABLE OPERATIONAL POLICIES AND SCOPE Indonesian Laws Other Applicable Safeguard Policies ESMF OBJECTIVES ESMF Purpose, Scope and Objectives Safeguard Requirements for Differing Financial Products and Project Components ESS Requirements Governing Preparation and Implementation of Projects ESS Performance Requirements Consultation and Disclosure Plan for the ESMF Updating and Commissioning of ESMF, Operations Manual ENVIRONMENTAL AND SOCIAL SAFEGUARD PRINCIPLES ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS (ESS-1) LABOR AND WORKING CONDITIONS (ESS-2) POLLUTION PREVENTION AND ABATEMENT (ESS-3) SAFETY, HEALTH AND SECURITY (ESS-4) LAND ACQUISITION AND INVOLUNTARY RESETTLEMENT (ESS-5) BIODIVERSITY CONSERVATION AND NATURAL RESOURCES MANAGEMENT (ESS-6) INDIGENOUS PEOPLES AND LOCAL COMMUNITIES (ESS -7) CULTURAL HERITAGE (ESS-8) ENERGY CONSERVATION AND ENVIRONMENT FRIENDLY ENERGY (ESS-9) CONSULTATION AND GRIEVANCE MECHANISM (ESS-10) ENVIRONMENTAL AND SOCIAL SAFEGUARD OPERATIONAL PROCEDURES ENVIRONMENTAL ASSESSMENT AND REVIEW FRAMEWORK Assessment Aims and Objectives Loan Application Stage Initial Screening and Impact Assessment Procedures Detailed Project Appraisal Loan Sanction and Disbursement Stage Project Implementation and Monitoring Stage Project Completion Stage CONSULTATION, PARTICIPATION AND INFORMATION DISCLOSURE PUBLIC CONSULTATION PRINCIPLES COMMUNITY CONSULTATION MECHANISM Consultation Mechanism Meaningful Consultation INDIGENOUS PEOPLE CONSULTATION AND CONSENT PROCEDURES Definition Objective Consent of Affected Indigenous Peoples Communities STAKEHOLDER ANALYSIS AND ENGAGEMENT REQUIREMENTS FOR PUBLIC CONSULTATION AND INFORMATION DISCLOSURE Public Consultation i

3 5.7.1 Information Disclosure GRIEVANCE REDRESS MECHANISM ORGANIZATION AND RESPONSIBILITIES ORGANIZATIONAL STRUCTURE AND ESS RESPONSIBILITIES Organizational Structure Board of Directors Risk Management Directorate Business Directorate Financing Facility Control Division (DPFP) Advisory and Project Development Support Division (DDPPA) ORGANIZATIONAL ARRANGEMENTS FOR IMPLEMENTATION AND FUNDING OF ESMF Consultation and Disclosure Plan for ESMF, Operations Manual Plan for Commissioning of ESMF, Operations Manual Organizational Framework External Stakeholders Engagement Assessment of Client s Capacity to Implement National Laws and ESS Requirements Periodic Updating Assessment of Supporting Indonesian Legal Framework Monitoring and Evaluation of the Implementation of ESMF, Operations Manual ESMF, Operations Manual Document Control and Update Implementation Procedures, Budgets and Institutional Arrangements CAPACITY BUILDING AIMS AND OBJECTIVES OPERATIONAL DOCUMENTS STAFFING OUTSOURCING TRAINING CORPORATE RESPONSIBILITY FUNDING MONITORING, REVIEW AND REPORTING MONITORING, SUPERVISION AND REPORTING OF THE INVESTMENT PROJECTS MONITORING, SUPERVISION AND REPORTING OF THE ESMF IMPLEMENTATION REFERENCES ANNEX 1 EXCLUSION LIST OF PT SMI ANNEX 2 APPLICABLE REGULATIONS UNDER INDONESIAN REPUBLIC RELATED TO SOCIAL & ENVIRONMENTAL SAFEGUARDS ANNEX 3 APPLICABLE ASIAN DEVELOPMENT BANK, WORLD BANK & IFC POLICIES Asian Development Bank operational policies World Bank operational policies International Finance Corporation performance standards ANNEX 4 EXAMPLE TERMS OF REFERENCE FOR PT SMI SOCIAL AND ENVIRONMENTAL SPECIALIST STAFF Social and Environment Manager Social Specialist (s) Environmental Specialist ANNEX 5 ENVIRONMENTAL & SOCIAL INITIAL SCREENING CHECKLIST ANNEX 6 SOCIAL & ENVIRONMENTAL PROJECT INFORMATION SHEET ANNEX 7 PROJECT INFORMATION REQUEST FORM ANNEX 8 SOCIAL & ENVIRONMENTAL SCREENING CATEGORIES OF PROJECTS ANNEX 9 - CHECKLIST TO DETERMINE THE APPLICABILITY OF PRINCIPLES ANNEX 10 ENVIRONMENTAL & SOCIAL ASSESSMENT & TYPES OF FINANCING ii

4 ANNEX 11 - SOCIAL & ENVIRONMENTAL REVIEW FORMAT (MEMO TO THE PT SMI BOARD OF DIRECTORS) ANNEX 12 - SITE VISIT CHECKLIST & RECORD ANNEX 13 OUTLINE OF ENVIRONMENTAL & SOCIAL APPRAISAL / DUE DILIGENCE REPORT ANNEX 14 COVENANTS PERTAINING TO ENVIRONMENTAL & SOCIAL SAFEGUARDS FOR INCLUSION IN CONTRACTUAL AGREEMENTS ANNEX 15 OUTLINE TERMS OF REFERENCE FOR ENVIRONMENTAL & SOCIAL IMPACT ASSESSMENT STUDY ANNEX 16 - SAMPLE TERMS OF REFERENCE EIA (INFRASTRUCTURE PROJECTS) Introduction Scope of Environmental Impact Assessment Report Regulatory and Planning Framework Project Description Baseline Information Impact Identification and Prediction Environmental Assessment and Cumulative Effects Assessment Environment Management Plans Environmental Monitoring Public Consultation and Grievance Mechanism Requirements Institutional strengthening to manage environmental impacts effectively: ANNEX 17 SAMPLE OF TERMS OF REFERENCE FOR PREPARING A LAND ACQUISITION AND RESETTLEMENT PLAN Objectives Time Frame Personnel Tasks ANNEX 18 OUTLINE OF AN INITIAL ENVIRONMENTAL EXAMINATION (IEE) REPORT ANNEX 19 OUTLINE OF AN ENVIRONMENTAL IMPACT ASSESSMENT (EIA) REPORT ANNEX 20 OUTLINE OF AN ENVIRONMENTAL MANAGEMENT PLAN Environmental Management Plan Mitigation Monitoring Capacity Development and Training Implementation Schedule and Cost Estimates Integration of EMP with Project ANNEX 21 GUIDANCE ON THE APPLICATION OF OPERATING PRINCIPLE ON LAND ACQUISITION AND INVOLUNTARY RESETTLEMENT Principles of Land Acquisition and Resettlement Plan (LARP) Land Acquisition Procedures for Projects Supported by PT SMI Land Valuation Types of Displaced Persons Eligible for Compensation ANNEX 22 OUTLINE OF A RESETTLEMENT ACTION PLAN (LARP) ANNEX 23 OUTLINE OF A RESETTLEMENT FRAMEWORK ANNEX 24 OUTLINE OF AN INDIGENOUS PEOPLE S PLAN ANNEX 25 OUTLINE OF AN INDIGENOUS PEOPLES PLANNING FRAMEWORK ANNEX 26 - OUTLINE OF CHANCE FINDING PROCEDURES IN RELATION TO THE OPERATING PRINCIPLE ON CULTURAL PROPERTY & HERITAGE PCR Definition iii

5 Ownership Recognition Procedure upon Discovery Demarcation of the Discovery Site ANNEX 27 - MONITORING AND SUPERVISION ANNEX 28 - DEVELOPERS ANNUAL ENVIRONMENTAL MONITORING REPORT TO PT SMI ANNEX 29 - DEVELOPERS ANNUAL SOCIAL SAFEGUARDS REPORT TO PT SMI ANNEX 30 - PT SMI ANNUAL SOCIAL & ENVIRONMENTAL PERFORMANCE REPORT TO STRATEGIC INVESTORS Introduction Social and Environmental Management Compliance by SMI with the Social and Environmental Requirements (as specified in the shareholders agreement) Summary of Safety Performance and Any Corrective Actions Sustainable Development Initiatives and Community Relations Annotated Outline of a Land Acquisition and Resettlement Plan (LARP) for Investee Projects Relocation of Housing and Settlements Income Restoration and Rehabilitation Resettlement Budget and Financing Plan Implementation Schedule Institutional Framework for Resettlement Monitoring and Evaluation ANNEX 31 - PROJECT IMPLEMENTATION / COMPLETION REPORT ANNEX 32 SECTOR-WISE ENVIRONMENTAL REVIEW / APPRAISAL CHECKLISTS iv

6 List of Abbreviations ADB AFD CAP EA EARF ESMF ESDD ESS OM ESS FI FPIC GEF GOI GRM IFC IFI IIF IPF IPDP IUCN JICA LARP LARF MFI MFF NGO PT SMI RAP RIDF SECO SOE WB Asian Development Bank Agence Française de Développement Corrective Action Plan Environmental Assessment Environmental Assessment and Review Framework Environmental and Social Management Framework Environmental and Social Due Diligence Environmental and Social Safeguards Operational Manual Environmental and Social Safeguards Financial Intermediary Free, Prior, and Informed Consent Global Environment Facility Government of Indonesia Grievance Redress Mechanism International Finance Corporation International Finance Institution Indonesia Infrastructure Finance Indigenous People Framework Indigenous Peoples Development Plan International Union for the Conservation of Nature Japan International Cooperation Agency Land Acquisition and Resettlement Plan Land Acquisition and Resettlement Framework Multi-Lateral Financing Institution Multi-Tranche Financing Facilities Non-government Organization PT Sarana Multi Infrastruktur (Persero) Resettlement Action Plan Regional Infrastructure Development Fund State Secretariat for Economic Affairs, Government of Switzerland State Owned Enterprise World Bank v

7 1. Introduction 1. PT Sarana Multi Infrastruktur (Persero) (PT SMI) is an infrastructure financing company which was established on 26 February 2009, as a State Owned Enterprises (SOE) wholly owned by the Government of Indonesia through the Minister of Finance (MOF). PT SMI plays an active role in facilitating infrastructure financing as well as preparing projects and serving in an advisory role for infrastructure projects in Indonesia. PT SMI carries the duty of supporting the Government s infrastructure development agenda for Indonesia through partnerships with private and/or multilateral financial institutions in Public- Private Partnership (PPP) projects. PT SMI s vision is to be a leading catalyst in Indonesia for the acceleration of the national infrastructure development agenda. While the mission of SMI 1 to: i) become a strategic partner with value added to develop Indonesia infrastructure; ii) establish flexible financing products; and iii) provide quality services which comply with good corporate governance. As part the commitment to good corporate governance, PT SMI has committed to manage its business activities in an environmentally-and-socially-friendly manner, remove or minimise environmentally or socially negative impacts, and enhance environmentally or socially positive impacts, in investment projects. The Company in its financing and investment activities, project development, and consulting services provision for infrastructure projects, adheres to a framework of environmental and social safeguards (ESS) which are both well defined, subject to progressive and periodic reviews, and are well aligned with the related national laws and development procedures of the GoI, and with international standards and best practices. 2. PT SMI bases it s ESS framework on ten fundamental safeguard principles (expanded in Section 3): i) ESS-1 The Assessment and Management of Environmental and Social Risks and Impact; ii) ESS-2 Labour and Working Conditions; iii) ESS-3 Pollution Prevention and Abatement; iv) ESS-4 Safety, Health and Security; v) ESS-5 Land Acquisition and Involuntary Resettlement; vi) ESS-6 Biodiversity Conservation and Natural Resources Management; vii) ESS-7 Indigenous Peoples and Local Communities; viii) ESS-8 Cultural Heritage; ix) ESS-9 Energy Conservation and Environmentally-Sound Energy; and x) ESS-10 Consultation and Grievance Mechanisms. 3. To attain a sufficient support for SOEs working within the infrastructure development sector, the Government of Indonesia has issued regulations that allow for direct lending from multi-lateral finance institutions (MFIs) like ADB and World Bank to SOEs 2. These regulations allow PT SMI to act as a conduit for direct loans, where PT SMI as a financial intermediary (FI) on-lends to other SOEs that are less than 100% government owned, or to 100% government owned SOEs that affiliate, joint-venture, partner, conglomerate, connect, link, associate or otherwise work in cooperation with either another SOE or private enterprise to develop and accelerate delivery of public infrastructure. These regulations, and the resultant movement towards an increase in MFI infrastructure financing, have exposed PT SMI to the need to align its ESS principles, standards and procedures with the ESS standards of the leading MFI s, such as ADB, World Bank, IFC and JICA. In such cases, PT SMI will act as an agent for the government undertaking a project due diligence assessment, using a suitable ESS framework, where a MFI is financing direct to an SOE such as State Electricity Company (PT PLN), and the MFI is obtaining a government guarantee. In undertaking the due diligence, PT SMI will be expected to assess the project s technical, financial, economic and environmental and social safeguard components, and advise the government on the readiness of the project or program. 1 (SMI, 2015) Laporan Tahunan 2015 (Annual Report) - Establishing Strategic Transformation - A Leading Catalyst in Facilitating Indonesia's Infrastructure Development, Jakarta, PT Sarana Multi Indonesia (SMI). 2 Presidential Regulation No. 82 of 2015 (Perpres 82/2015) provides for a government guarantee issued by the Ministry of Finance to the Development Financing Institutions for 100% of the outstanding loan plus interest. To implement Perpres 82/2015, the Minister of Finance (MOF) has issued an implementing regulation (Regulation of Finance Minister (PMK) No. 189/PMK.08/2015), that provides rules for SOEs to apply for guarantees and compliance. In addition the MOF has set up Risk Management protocols to liquidate the guarantee and to account for contingent liabilities. The government is currently seeking support from ADB to strengthen fiscal risk management for accelerated infrastructure delivery. 1

8 4. To assist in the above alignment process, in October 2016, PT SMI has a guiding regulation on the implementation of Environmental and Social Safeguards (ESS) for Multilateral Projects 3 (SMI, 2016c), which provides over-arching policy guidance on the implementation of MFI ESS standards as part of the PT SMI project investment and advisory portfolio. Together with the development of this upper-level corporate guidance document, PT SMI has made effort together with the World Bank to prepare the an Environmental and Social Framework (ESMF) for the Indonesian Regional Infrastructure Development Fund 4 (RIDF) 5. This document, together with a separate ESMF focused upon geo-thermal project investment, has assisted PT SMI to align its corporate ESS with the World Bank and IFC safeguards systems. 5. To enable PT SMI s lending program, and to further facilitate their due diligence assessment of government guaranteed projects, PT SMI has conducted a program over June October 2016 to prepare an Environmental and Social Safeguard Operations Manual (ESS OM) to guide PT SMI corporate activities, and an Environmental and Social Management Framework (ESMF) to guide PT SMI ESS specialists in their investment project cycle management. This effort also assists MFI s, such as the Asian Development Bank (ADB), who are assessing if INO CSS is consistent with ADB ESS 6, and the World Bank which has made similar past efforts The purpose of the current Environmental and Social Management Framework (ESMF) is to detail the Social and Environment safeguard policies, principles, detailed procedures, institutional arrangements and workflows that PT SMI should follow for making all of its investments compatible with the requirements of national laws, stakeholder MFI ESS principles and international best practice standards. PT SMI should use the ESMF to ensure consistent and effective implementation of social and environmental management practices in all its activities, products and services, across the organization as a whole. PT SMI are committed the implementation of the ESMF as part of their commitment to environmental and socially sustainable infrastructure development, as an integral part of ESS implementation at the corporate management level, and as supported by policies and over-arching steps and procedures outlined in the separately developed PT SMI ESS OM, which provides guidance at the corporate management level. 6. The ESMF consists of: i) The Environmental and Social Management Framework (ESMF); and ii) Detailed procedures, process and formats for Social and Environmental Safeguards Management (Annexes). 7. The ESMF is intended for use by PT SMI institution, and by staff of all levels within the organization, as a policy statement document, and It also serves a communications role with the public and potential investors (such as MFIs) to assist external stakeholders to understand the Environmental Social Safeguards (ESS) policies and procedures of PT SMI. 3 (SMI, 2016c) Peraturan Direksi PT Sarana Multi Infrastruktur (Persero) tentang Pedoman Perlindungan Lingkungan dan Sosial (Environmental and Social Safeguards - ESS) Proyek Multilateral, Jakarta, Indonesia, PT Sarana Multi Infrastruktur (Persero). 4 Funded by the Government of Switzerland, State Secretariat for Economic Affairs (SECO), and administered by the World Bank. 5 (World Bank, 2016) Indonesia - Regional Infrastructure Development Fund Project : Environmental and Social Management Framework (ESMF), World Bank; and (SMI, 2016a) Environmental and Social Management Framework Jakarta, Regional Infrastructure Development Fund Project, PT Sarana Multi Indonesia (Persero) - World Bank. 6 ADB Technical Assistance to Indonesia for Aligning ADB and Country Systems for Improved Project Performance, implemented by ADB and BAPPENAS, commenced by fact finding mission in October November, 2013, Manila (TA 8548 INO). The TA aims to improve project performance through (i) promoting the use of CSS for the first time with an ADB developing member country, (ii) initiating the use of the new risk based approach to adopt country procurement systems, and (iii) improving alignment between ADB and government business processes for project preparation and start up. 7 (World Bank, 2005) Piloting the Use of Borrower System to Address Environmental and Social Safeguard Issues in Bank-Supported Projects., Washington DC, World Bank; and (World Bank, 2008) Evaluation of the Initial Phase of the Pilot Program for Use of Country Systems for Environmental and Social Safeguards., Washington DC, World Bank. 2

9 2. Environmental and Social Safeguard Policies and Objectives 2.1 ESS Policy Objectives 8. PT SMI is committed to manage the environmental and social risks and impacts 8 which may arise from its businesses. The ESS policies are the rules to promote project sustainability by protecting the people and environment from the project s adverse impacts. PT SMI is committed to support their clients to develop the capacity to assess and manage the environmental and social risks and project impacts. 9. The ESS Policy objectives of PT SMI are to: i) Avoid, or where avoidance is not possible, minimize, mitigate, or compensate for adverse impacts, and enhance any positive impacts, of projects and investments upon workers, affected communities, indigenous peoples and the environment; ii) Mitigate and/or or compensate the adverse social and environmental risks and project impacts in accordance with the ESS, government law and regulations, and to a level acceptable to strategic investors and MFI financiers; iii) Support efforts to foster sustainable development, the conservation or rehabilitation of natural resources and biodiversity, and the optimum use of energy and water; iv) Ensure that affected communities are appropriately engaged on issues that could potentially affect them; v) Ensure that social safeguards, based on the principle of restoration and possible improvement in the economic status of project affected people (PAP) and/or Affected Communities are integrated by developers into the project design prior to its financing and in its implementation during the construction and operational phases; vi) Promote workers and community health and safety; vii) Support the clients to develop the capacity to assess and manage the environmental and social risks and project impacts. 10. To achieve the policy objectives, PT SMI will implement the policy principles and carry out the procedures described in the following Sections 4 to 9: i) Conduct due diligence and review to assess the potential environmental and social risks and project impacts and planning process; ii) Assist the clients to assess and manage the potential environmental and social risks and projects impact; iii) Conduct regular monitoring and supervising environmental and social safeguards to confirm the compliance with the ESS policies, and review the performance of environmental and social safeguards management. 8 The impacts and risks may take form of any potential direct, indirect, cumulative, and induced impacts and risks to physical, biological, socioeconomic (including impacts on livelihood through environmental media, health and safety, vulnerable groups, and gender issues), and physical cultural resources in the context of the project s area of influence. 3

10 2.2 Other Applicable Operational Policies and Scope Indonesian Laws 11. Indonesian laws are used as the legal basis of this ESMF, with the relevant laws and regulations described, but are not limited to, the list outlined within Annex 2 9. These laws and regulations apply to all PT SMI business activities, project, investments and advisory services Other Applicable Safeguard Policies 12. The PT SMI ESMF overall should also take into account the applicable safeguard policies of the MFI s with which PT SMI has working relations, namely: i) The three ADB Safeguard Policies that would be triggered by the PT SMI s Projects and the ESS requirements provided by the ADB Safeguards Policy Statement (2009) 10 ; ii) The ten World Bank Safeguard Operational Policies that could be triggered by PT SMI s Projects, with attention to the current umbrella policy (OP 4.01) on environmental and social protection, and attention to the Environmental and Social Framework (ESF) 11, which is under current preparation for implementation post 2017; and iii). The eight Performance Standards (PS) of the IFC version , which are also utilized by AfD and Equator Principles financial organizations 13 in their ESS assessment and management process. 13. A detailed summary of each of the above MFI ESS principles and the safeguard objectives of each principle is provided in Annex ESMF Objectives ESMF Purpose, Scope and Objectives 14. The purpose of the ESMF is to provide the PT SMI ESS managers and development clients with the details the Social and Environment safeguard policies, principles, procedures, institutional arrangements, and workflows that PT SMI follows for making its investments. The PT SMI should use the ESMF to ensure consistent and effective implementation of social and environmental management practices in all its activities, investment and development projects, and also to guide the provision of all advisory services. 15. To achieve the above aim, the ESMF serves the following purposes to: i) Guide PT SMI to Identify the above risks, hazards and impacts as early as possible in the project cycle, including considerations in the site selection process, the product design process, the engineering planning process for capital application, the demand for engineering work, facility modification authorization, or layout planning and process changes; 9 The regulations outlined are only up to the Government regulation level.. 10 (ADB, 2009) Safeguard Policy Statement, Asian Development Bank, Manila. 11 (World Bank, 2016a) Environmental and Social Framework (ESF) - Setting the Environmental and Social Standards for Investment Project Financing, Washington D.C., World Bank. 12 (IFC, 2012), IFC Performance Standards on Environmental and Social Sustainability, International Finance Corporation - World Bank Group, Washington DC. 13 Equator principles financial institutions are those that have adopted the Equator Principles, a financial industry framework for addressing environmental and social risks in project financing. Adopted in 2003 by 10 of the world s leading commercial banks, the Equator Principles are an offshoot of the desire of the banks to develop a common and coherent set of environmental and social policies and guidelines to be applied globally and across all industry sectors. Each of the financial institutions declares that it has or will put in place policies or business processes that are consistent with the Equator Principles. They commit not to lend to projects where the borrower will not or cannot comply with its social and environmental requirements (ADB, 2009). 4

11 ii) Guide PT SMI to identify risk possibility and scale based on: a) the nature of the project activities, whether the project will create the significant emissions or effluents, involve the process of hazardous and toxic substances, or disturb landscape hydrology or ambient water or air quality or noise levels; and b) potential consequences to workers, communities, economies or environment when the hazards are not managed properly; iii) Guide developers to educate workers and surrounding communities in anticipating any accident occurrence, including providing technical and financial resources to avoid or minimize risk, and for effective and safe control of every accident Safeguard Procedures for Differing Financial Products and Project Components 16. PT SMI will have three main financial product categories. i) Advisory Services where PT SMI has been provided funding or instructed (i.e. most often from the Ministry of Finance) to provide project development advisory services, which does not involve any disbursement of PT SMI funds; ii) Financing and Investment (fund-based products) where PT SMI provided finance and banking services to assist project developments (e.g. senior debt, subordinated debt, mezzanine funding, equity investment, bridge finance, refinancing, securitization) 14 - involving actual disbursement of PT SMI funds; iii) Project Development (fund-based products) where PT SMI manages and prepares the project developments directly in support of the project developer - involving actual disbursement of PT SMI funds. 17. The approach of assessing, managing and monitoring environmental and social impacts will also be different for particular project with different stages of preparedness (Table 2-1). Table 2-1: Project Categories by Development Stage Project Type Type 1 Type 2 Type 3 Development Stage Projects in the early stages of preparation (with sites that have not been selected and design options that are still open) will be subject to the full project ESS review procedure of Chapter 4 will need to be applied. PT SMI will require the Clients to collaborate with the PT SMI ESS Risk Management team to prepare the necessary documents. Projects that have been fully prepared (where construction bids have been invited). PT SMI will conduct detailed appraisal of the ESS documents that are available and will ask the Clients to supplement them or develop and disclose new documents ones, as applicable, prior to the final project appraisal. If appraisal finds there are gaps, PT SMI have be ensure that ESS gaps are addressed, not only in terms of documents produced but in terms of addressing the resulting impacts/risks to avoid or minimize them. Projects with facilities that have already been constructed or for projects which are under construction, PT SMI will carry out a due diligence to confirm that: (a) the project is in compliance with this ESMF; (b) there are no reputational risks for PT SMI and MFI if they are involved; and (c) there are no legacy issues or no pending legal disputes or liabilities. Based on the findings of such an assessment, PT SMI will ask its client to implement remedial measures, as needed, or to mitigate potential reputational risks or to address legacy issues or liabilities, with all ESS documents and instruments to be disclosed prior to the final project appraisal. 14 The first five categories of projects provided with finance - senior debt, subordinated debt, mezzanine funding, equity investment, and bridge finance - all involve financing for new infrastructure. The final two categories of projects provided with finance - refinancing and securitization - involve raising financing on the basis of existing infrastructure (effectively as collateral), for the purpose of building new infrastructure. 5

12 18. The PT SMI infrastructure lending and development business will encompass the fund-based products, and will also require a consideration of the different levels of project preparedness or readiness for implementation as defined by the project types above. Thus, there will be four types of projects that would fall under the PT SMI business process, which will require different types of ESMF review procedures: i) Type 1 Projects in the early stages of preparation (with sites that have not been selected and design options that are still open). In addition to other subproject preparation documents (such as FS), the Clients will have to prepare and disclose Environmental and Social Safeguards documents (i.e. EIA, EMP, SIA, LARAP, IPP, etc.), as relevant with the project. At this stage, PT SMI will suggest the Clients to collaborate with the ESS team to prepare the necessary documents; ii) Type 2 Projects that have been fully prepared (where construction bids have been invited). PT SMI will review the E&S documents that are available and will ask the Client to supplement them or develop new ones, as applicable. The Clients may seek assistance from the ESS team to prepare or improve the necessary documents. All required documents must be disclosed prior to subproject appraisal. iii) Type 3 Projects with facilities that have already been constructed or the projects which is under construction. PT SMI will carry out a due diligence to confirm that: (a) the project is in compliance with this ESMF; (b) there are no reputational risks for PT SMI and/or the supporting MFI; and (c) there are no legacy issues or no pending legal disputes or liabilities. Based on the findings of such an assessment, PT SMI will ask its client to implement remedial measures, as needed, or to mitigate potential reputational risks or to address legacy issues or liabilities. All safeguards instruments will have to be disclosed prior to the subproject appraisal; iv) Type 4 Projects provided with advisory services. PT SMI will carry out a due diligence to confirm that: (a) the project is in compliance with this ESMF; and (b) there are no reputational risks for PT SMI and/or the supporting MFI. 19. The ESMF will be applied to projects in each of the above categories. However, the specific activities undertaken in assessing, managing and monitoring environmental and social impacts of a particular project will be different for the advisory services than for the Fund based products. 20. For Fund based products (financing and investment and project development), the standard ESMF steps and procedures outlined in Section and Chapter 4 will apply. The projects provided with advisory services will need to be assessed differently, and will essentially involve advisory and consulting services to a range of clients such as the Government, private sector developers and regulatory agencies. 21. For all projects provided with advisory services, PT SMI will need to ensure, based on its initial review (refer to Chapter below), that its recommendations are consistent with the ESS Policy and ESS principles of PT SMI. For this to happen, the Director, Risk Management Committee will need to ensure that the Risk Management Division Head is informed of all advisory service provision assignments. 22. The differences in ESS requirements and procedures among the differing Fund-Based and Advisory Services based types of service provision are described in more detail in Annex 10 which a provides a matrix containing risk exposure, example and approach to ESS risk assessment for different types of PT SMI business procedures ESS Requirements Governing Preparation and Implementation of Projects 23. This ESMF is designed to mainstream the ESS into the loan processing cycles for projects seeking funding support from PT SMI. The application of the ESMF procedures begin right from the time of subproject preparation and the loan application to PT SMI and proceeds through steps of: (1) loan application, (2) initial screening, (3) subproject appraisal, (4) contract signing, (5) loan disbursal, and (6) monitoring and evaluation. The ESMF also includes external audit, document update and disclosure norms. The ESMF operational guidance scope covers: i) Environmental and social risk mitigation tools such as environmental impact assessment (EIA) and environmental management plan (EMP), based on the project risk categorization. The generic ToR 6

13 of EIA and EMP are also provided so that can be used for project preparation studies (pre FS, FS) for PT SMI review activities. ii) Land acquisition and resettlement policy framework, which includes principles, procedures, requirements and organizational arrangements for involuntary land acquisition and resettlement; comprehensive land acquisition and resettlement plan or abbreviated resettlement action plan based on the project risk categorization. iii) Indigenous Peoples Planning Framework, which includes principles, procedures, requirements and organizational arrangements to address Indigenous Peoples affected by project; Social Assessment and Indigenous Peoples Plan when Indigenous Peoples are affected. iv) Grievance redress and stakeholders consultation mechanisms to ensure a participatory and fair approach in evaluating and mitigating project risks. v) Details on stakeholders and their responsibilities. vi) Details on human resource strengthening required in PT SMI for implementing the framework. vii) Guidance on capacity building. viii) Instructions on the monitoring and update of this document. 24. This ESMF outlines the requirements and procedures for application of the frameworks in the business cycles of PT SMI. The ESMF includes a set of tools such as templates for checklists and appraisal forms, sample terms of reference (ToRs) for preparing documents for safeguards mitigation measures, outlines for various environmental and social safeguards instruments, and a list of mandatory covenants to be included in loan agreements (see Annexes 4 to 32). The ESMF also provides details on how to follow the operating procedures, apply the frameworks, and use the templates, ToRs and outlines of EIA, UKL- UPL, LARAP, SA, and IPP are provided. 25. The details in regard to environmental and social screening, categorization and impact/risk management procedures are elaborated in Chapter ESS Performance Requirements 26. PT SMI will ensure that all the investments, projects and advisory services are reviewed and evaluated against the following ESS requirements: i) the Exclusion List (refer to Annex 1); ii) the applicable national laws on environment, health, safety and social issues (refer to Annex 2); and iii) the PT SMI Principles (refer to Chapter 3). The Principles are consistent with the requirements of the PT SMI s Strategic and MFI Investors, as amended from time to time Consultation and Disclosure Plan for the ESMF 27. PT SMI under guidance of GoI procedures, and in communication with key MFIs (i.e. ADB, World Bank, IFC, JICA and AfD), will ensure that meaningful consultation will be carried out to review any future revised drafts of the ESMF, and that the consultation processes will be appropriately documented in the revised final ESMF. The ESS operations departments of the MFIs will be also invited to conduct due diligence and review of any future revised ESMF documents, to determine that PT SMI has maintained the requirements for ESMF development. 28. A stakeholder consultation for future revised drafts ESMF, should be conducted with the main purpose to seek inputs for the ESMF revision from the potential client organizations, key central agencies, relevant NGOs and other institutions; and to socialize the PT SMI s ESMF commitment to follow international best practices in ensuring that financed projects will be environmentally and socially sustainable. 7

14 29. Drafts of any future revised ESMF post-consultation should be disclosed to the public in the PT SMI s website. 30. Project-specific safeguards instruments (such as LARAP, IPP, IEE, EIA, EMP, AMDAL, UKL / UPL acceptable to PT SMI and related MFI s) shall be subject to separate consultations and disclosure by the client organizations each time a PT SMI project or investment is developed. The timing for consultations shall be carried out prior to project detailed appraisal by PT SMI. The client organization will disclose the IEE, EIA, EMP, LARAP, IPP, etc. at the planning stage of project preparation, in their websites, a public space accessible to the affected groups, local NGOs and other stakeholders. In addition, PT SMI will also disclose 15 such instruments in its website, upon endorsement of the clients getting the loan from PT SMI Updating and Commissioning of ESMF, Operations Manual 31. The ESMF is a living document which may be updated by PT SMI from time to time in accordance to the needs, lessons learned during the course of ESS management operations and project development, and to align the ESMF both the PT SMI and stakeholder MFI environment and social safeguards, regulatory requirements, the nature / scale of projects and the status of the environment. The updated ESMF shall be reviewed by the stakeholder MFI s, approved by the board of management of PT SMI, and will be made available to the stakeholders through PT SMI s website. 32. Any external review findings / observations, and lessons learnt, should also be incorporated into the ESMF updating revision to ensure its continued suitability and adequacy. The updates should be recorded in the document control revision sheet of the ESMF to preserve the history, scope of review and reasons for changes. The ESSBCM Division environment and social safeguard staff of PT SMI is responsible for updates. 33. The ESMF will also be operational, only after a review and approval process conducted internally by the board of management of PT SMI, and then a further review by stakeholder MFI s as a peer review process of the PT SMI ESS standards. 15 MFI disclosure requirements should be complied with. E.g. ADB required a 120 disclosure of projects category A for environment on the ADB website before approval. 8

15 3. Environmental and Social Safeguard Principles 34. The application of PT SMI ESS in the loan and project-cycle are guided at top policy level by the PT SMI Environmental and Social Safeguards (ESS) Guideline for Multi-Lateral Projects Fund 16. As defined in this ESS framework document, PT SMI base their ESS approach upon a core of ten safeguard principles which are outlined in detail as follows. 3.1 ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS (ESS-1) 35. This first element emphasizes the importance of managing environmental and social aspects in the project implementation. The compliance with environmental and social regulations is a dynamic and ongoing process that begins by the Company -proponent management, Government and Community. The compliance with environmental and social regulations is a must prior to the commencement of a project. This involves environmental permit, location permit, land-use permits and other required permits in accordance with the regulations of the Republic of Indonesia. This compliance nature includes the elements of business process, namely planning, implementation, monitoring and improvement. Its implementation has passed the environmental and social risk and impact studies and assessments. The management and mitigation of any occurring risks have also been prepared. Objectives i) To get necessary development permits and social licences as part of the government's efforts to identify, assess and manage the positive or adverse environmental and social risks, impacts and sustainability of the project prior to the project execution. ii) To Identify and manage the environmental, social, health and safety, and specific local community risks and impacts, with aim to remove or suitably mitigate any negative impacts, and enhance any positive impacts, where possible. iii) To support the conservation of natural resources and optimal use of energy and water resources. iv) To ensure transparency and participation in PT SMI s ESS risk assessment and mitigation process through implementation of proper community involvement, FPIC, public consultation, information disclosure and implementation of grievance mechanisms for affected communities and the public. v) To conduct regular evaluations to improve quality of environmental and social assessment and reporting, and improve the overall environmental and social performance of projects and Company activities, and to assess the effectiveness of company ESS policies. Scope of Application 36. This first element is applied to a project having low, medium and high risks with a necessity to obtain necessary permits prior to the project execution. Accordingly, the environmental and social impacts can be managed in a sustainable manner. Stipulation 36. PT SMI requires environmental assessment (EA) of projects proposed for PT SMI financing to help ensure that they are environmentally sound and sustainable, and thus to improve decision making. i) EA is a process whose breadth, depth, and type of analysis depend on the nature, scale, and potential environmental impact of the proposed project 17. EA evaluates a project's potential 16 (SMI, 2016b) Pedoman Perlindungan Lingkungan dan Sosial (Environmental and Social Safeguard/ESS) Proyek Multilateral (Environmental and Social Safeguard Guideline for Multi-Lateral Projects Fund), which was enacted into regulation in October, Includes direct, indirect, cumulative, induced impacts. 9

16 environmental risks and impacts in its area of influence; examines project alternatives; identifies ways of improving project selection, siting, planning, design, and implementation by preventing, minimizing, mitigating, or compensating for adverse environmental impacts and enhancing positive impacts; and includes the process of mitigating and managing adverse environmental impacts throughout project implementation. PT SMI favors preventive measures over mitigatory or compensatory measures, whenever feasible. ii) EA takes into account the physical and natural environment (air, water, and land); human health and safety; social aspects (involuntary resettlement, indigenous peoples, and physical cultural resources) and livelihoods as linked to environmental resources; and trans-boundary and global environmental aspects. EA considers physical, natural and social aspects in an integrated way. It also takes into account the variations in project and country conditions; the findings of country environmental studies; national environmental action plans; the country's overall policy framework, national legislation, and institutional capabilities related to the environment and social aspects; and obligations of the country, pertaining to project activities, under relevant international environmental treaties and agreements. iii) PT SMI does not finance project activities that would contravene such country obligations, as identified during the EA. EA is initiated as early as possible in project processing and is integrated closely with the economic, financial, institutional, social, and technical analyses of a proposed project. iv) PT SMI undertakes environmental screening of each proposed project to determine the appropriate extent and type of EA. PT SMI classifies the proposed project into one of four categories, depending on the type, location, sensitivity, and scale of the project and the nature and magnitude of its potential environmental impacts. v) PT SMI uses a classification system to reflect the significance of a project s potential environmental impacts. A project s category is determined by the category of its most environmentally sensitive component, including direct, indirect, cumulative, and induced impacts in the project s area of influence 18. Each proposed project is scrutinized as to its type, location, scale, and sensitivity of the receiving environment and the magnitude of its potential environmental impacts. Projects are assigned to one of the following four categories (see Annex 5 for details ) vi) The EA has to be undertaken based on the screening and classification of the project. The project must have permits as stipulated by the regulations of the Republic of Indonesia prior to the project execution and hand over regular reports to the relevant authorities. It is also a must to extend the validity period if any of the permits is expired or to notify of any changes if this is required under the permit. vii) If the project is approved to operate, but it requires specific permits in accordance with the regulations, the project shall obtain such permits. 18 The area of influence is defined in line with ADB SPS 2009 and encompasses (i) the primary project site(s) and related facilities that the borrower/client (including its contractors) develops or controls, such as power transmission corridors, pipelines, canals, tunnels, access roads, borrow pits and disposal areas, and construction camps; (ii) associated facilities that are not funded as part of the project (funding may be provided separately by the borrower/client or by third parties), and whose viability and existence depend exclusively on the project and whose goods or services are essential for successful operation of the project; (iii) areas and communities potentially affected by cumulative impacts from further planned development of the project, other sources of similar impacts in the geographical area, any existing project or condition, and other project-related developments that are realistically defined at the time the assessment is undertaken; and (iv) areas and communities potentially affected by impacts from unplanned but predictable developments caused by the project that may occur later or at a different location. The area of influence does not include potential impacts that might occur without the project or independently of the project. 10

17 viii) If the due diligence or monitoring process conducted by either the Environmental and Social Safeguard Specialists or Pool of Experts is recommended to obtain certain permits, the project shall obtain such permits. ix) If the project does not have the permits relating to the Environmental Permit and Location Permit, the project would not be eligible for financing from PT SMI. x) Other than that, the project will be asked to consider the following matters, as part of the Environmental and Social Compliance Rules: 1. Organization Capacity and Competency 2. Trainings: a) Emergency situations Response and Preparadness; b) Community Engagement; and c) Monitoring, reviewing, and reporting. 3.2 LABOR AND WORKING CONDITIONS (ESS-2) 37. This second element emphasizes the efforts of economic growth through fair employment and income as the fundamental rights of workers. For all projects, the workforce is a valuable asset and a good relationship between workers and management is one of the keys to the Company s progress and productivity. The failure to maintain good relations between workers and management can reduce the worker commitment and retention, which in turn can jeopardize the project. By having the constructive management and worker relationship as well as by treating the workers fairly and providing safe and healthy working conditions, the project can win benefits such as operational productivity and efficiency. Objectives i) To create, improve, and maintain relationships between the management and workers. ii) To encourage the fair treatment without discrimination and equal opportunities for workers and efforts to comply with Employment Act. iii) To protect workers by preventing children labor and forced labor. iv) To encourage the safe and healthy working and living (if provided by the Company) conditions as well as to protect and promote the worker health. Scope of Application 38. This second element is one of the requirements stipulated by the Company in performing the Environmental and Social assessment as a part of mitigating environmental and social risks, both conducted when the project starts its construction, and during the project operation. This implementation is as a compliance with Employment Act. 39. It is the obligation of the project management to treat workers fairly, either they are Permanent Employees, Contract Employees or Outsourcing Employees. The management should adhere to the wage and minimum wage regulations set by the government. Stipulation Human Resource Policies 40. The project should adopt human resources policies by applying a humanist approach to well manage workers in line with appropriate rights and obligations, including the rights to receive remuneration and compensation in accordance with the applicable regulations. Working Conditions and Terms of Employment 41. The project is required to provide good working conditions both in terms of administration and rules of employment such as working hours, overtime, permission to leave office because of illness, childbirth as well as the protections, namely social insurance and health insurance. 11

18 42. The project should provide a safe, healthy and secure work environment for workers by considering the risks in certain sectors, including the hazards of physics, chemistry, biology, and radiology. The project management should take measures for the prevention of occupational accidents and diseases. Worker Organization 43. The project management is not allowed to prohibit the workers to join any organizations and workers are entitled to voice their opinions in accordance with the Act of freedom to join any association and to express their opinions in public; however, workers must also comply with the limitations set forth in the applicable regulations in the freedom to join any association and voice opinions in public. Non-Discrimination and Fair Opportunity 44. The project may not make any employment decisions based on characteristics beyond the inherent occupational requirements. The project management should establish equal opportunity and justice according to the regulations of the Republic of Indonesia in treating workers without discriminating to gender, ethnic groups, religion, political views including in the hiring process, compensation (salaries and allowance), working conditions and type of employment, training, promotion, termination or pension and disciplinary actions. Termination of Employment 45. The project management should develop a plan to mitigate the adverse impact of termination on workers. Should due to any certain reason, the employment termination has to be done, it should be executed in accordance with applicable regulations and consulted with local employment agencies. Child Labor and Forced Labor 46. The project should not employ children in for economic interests or that may harm or interfere with the education of these children or do violence to their health or physical, mental, spiritual, moral, or social developments. All workers must be at least 18 years old and must be legally employable under existing government regulations.. The project may not employ forced labors or someone under threat of coercion or punishment. 3.3 POLLUTION PREVENTION AND ABATEMENT (ESS-3) 47. The third element stresses the pollution prevention and reduction in industrial and project activities, namely water, soil, air and noise pollution including greenhouse gas emission that may threaten people and the environment. This element underlines the eco-friendly approach by integrating methods or technologies as far as their uses are technically and feasible and effective in costs in the condition that the project relies on the commercially available expertise and resources. Objectives i) To prevent or minimize negative impacts on human health and the environment quality by avoiding or minimizing pollution from project activities. ii) To encourage the reduction of greenhouse gas emissions which contribute to global warming phenomenon. Scope of Application 48. The application of this element is performed in the Environmental and Social Assessment before the project takes place and during periodic assessments. If any finding occurs, an immediate improvement recommendation should be made as an effort to fix the problem and it should be managed under the project Environmental and Social Management System. Stipulation 12

19 General Requirements 49. During the project design, construction, operation, and commissioning, the project management should consider ambient conditions and apply both technically and operationally prevention and control of pollution that is most appropriate to avoid or if it is impossible to avoid, the effort to minimize or mitigate negative impacts on human health and the environment should be carried out as long as it is technically and financially feasible as well as cost-effective. Pollution Prevention and Reduction 50. The project should avoid the release of contaminants or pollutants into soil, water and air. If it is unavoidable, the project should minimize or control the intensity or the amount of released pollutants. Risk assessments need to be carried out in routine and non-routine activities, or in any activities having the potential negative impact on people and the environment by performing the measurably internal steps in operational activities in line with the principles of environmentally friendly operations. Waste 51. Wherever possible, the project should minimize the Hazardous and Toxic Substances and nonhazardous and toxic by using 1) Reduce Method or reducing the waste production, and 2) Reuse Method or reusing the waste for a beneficial process 3) Recycle Method or recycling the waste. If these are impossible to do, the project should process, destroy, and temporarily store hazardous in such ways that are environmentally friendly and in accordance with the regulations. If the generated waste also includes hazardous and toxic, the project should process, utilize or disposed of, according to the regulations of the Ministry of Environment and Forestry. If the waste disposal is done by third party, the project should use a reputable contractor and approved by the competent authority. Hazardous Materials 52. The project should do prevention, but if this is impossible to do, the project should minimize the use or control the release of hazardous and toxic materials coming from the production, transportation, handling, storage, and application for project activities. The project should avoid the manufacture, trade and use of chemicals which are not allowed by the government, agreed to be reduced by the government, or required by the international conventions because of the high toxicity to living organisms, environmental resistance, or depletion potential of ozone layer. Pesticide, Herbicide and Fungicide Use and Management 53. In assisting the projects to manage pests, weeds and fungal infections that affect either agriculture or public health, PT SMI supports a strategy that promotes the use of biological or physical control methods and reduces reliance on synthetic chemical pesticides. In PT SMI-financed projects, the project addresses pest management issues in the context of the project's environmental assessment. 54. In appraising a project that will involve pest management, PT SMI assesses the capacity of the institutions to promote and support safe, effective, and environmentally sound pest management. As necessary, PT SMI and the project incorporate in the project components to strengthen such capacity. 55. PT SMI requires that any pesticides, herbicides or fungicides it finances be manufactured, packaged, labeled, handled, stored, disposed of, and applied according to applicable standards. PT SMI does not finance formulated products that fall in WHO classes IA and IB, or formulations of products in Class II, if (a) the country lacks restrictions on their distribution and use; or (b) they are likely to be used by, or be accessible to, lay personnel, farmers, or others without training, equipment, and facilities to handle, store, and apply these products properly.pt SMI will also not support any pesticide, herbicide or fungicide use on investment or development projects which include chemicals listed as banned or of restricted use under Indonesia Law 19 or under the Stockholm Convention (2001) on Persistent Organic Pollutants Keputusan Menteri Pertanian (Minister of Farming Decree) No /Kpts/TP.270/7/ See 13

20 Ambient conditions 56. To overcome the adverse impact of the project on the ambient conditions, the project should record Environmental Baseline Study and compare the measurements of ambient conditions on a regular basis. If there is any detected significant increase, the project should find the causes and create any necessary action plans. To minimize or reduce the release of pollutants is one of the recommended ways in maintaining the ambient conditions and this is also as a means of reducing the risk of potential changes in ambient conditions. Greenhouse Gas Emission 57. The project should encourage the reduction of greenhouse gas emission (GHG) coming from the project activities. The project should apply greenhouse gas mitigation actions and estimates potential GHG emission in different project cycles from pre-construction, construction and post construction as well as operational phase. GHG calculation and monitoring should be held each year referring to the methodology set by the government. The emission reduction includes, but not limited to, energy efficiency, use of renewable energy sources, design change process, and the adoption of other financial and technical feasible GHG mitigation measures. 3.4 SAFETY, HEALTH AND SECURITY (ESS-4) 58. This fourth element emphasizes not only on the project activities and infrastructure development that bring benefit to the community in economic development, but also to minimize of the project potential risk exposure and impact on society arising from workplace accidents due to equipment failure, structure failure, hazardous and toxic and hazardous and toxic waste spreading as well as security issues. This element is used as the project obligation to prevent or minimize the risks and impacts on safety, health and security arising from the project activities. Objectives i) To prevent or minimize the risks and impacts on health, safety and security of workers and surrounding community both in routine and non-routine activities. ii) To ensure protection of personnel and property is done properly so as to prevent or minimize risks to the community s safety and security. Scope of Application 59. The application of this element is done as part of the Social and Environmental Assessment process. The project s Environmental and Occupational Health and Safety Management System include procedures for the protection of environment, health and work safety to avoid impacts on human health and project safety to anticipate security problems. Stipulation Work Health and Safety 60. The project should evaluate the risks and the impact on the safety and health of workers and the affected community during the design, construction, commissioning and operation, of the project and develop preventive measures to overcome it in accordance with the identified risks and impacts. Such measures can support the prevention of risks and impacts through the hazard minimization and reduction. Infrastructure and Equipment Safety 61. The structural elements or components of the project s design, construction, commissioning and operation should be in accordance with the applicable regulations and should consider the potential risk to the hazards, especially if the structural elements are accessible by the public or if the structural failures during the construction and operational periods can cause people s injury. Structural elements must be designed and constructed by qualified and experienced professionals, and certified or approved by the 14

21 government agencies or in other words, by competent professionals. For the project that operates moving equipment on public roads and other infrastructure forms, the project management should seek to prevent incidents and accidents. Environmental and Natural Resources Issues 62. The project should avoid or minimize the potential for natural disasters such as landslides or floods that may occur due to changes in land use related to the project activities. The project should also prevent or minimize negative impacts due to project activities related to soil, water and other natural resources that are used by the surrounding community. Adaptation on Climate Change Impact 63. The project should promote different measures related to adaptation on climate change impacts. Those measures aim at minimizing climate change impacts to communities and at reducing vulnerabilities as well as increasing resilience of communities to face different climate change related risks in different sectors. Disease Exposure to Community 64. The project should avoid or minimize the potential exposure to diseases caused by the project activities. If the diseases in the affected community have endemic nature, the project should monitor and encourage opportunities to improve the healthy environment condition during the project activities so as to reduce the amount of exposure. Emergency Response and Preparedness 65. The project should assess the potential risk and impact of the project activities and inform the surrounding community about the significant hazards in ways that are appropriate with the local culture. The project can cooperate with the community leaders and local government in the preparation of emergency response so that the emergency treatment can be done effectively. The project should document the activities of emergency response preparedness, tools and equipment, emergency response team and persons in charge in emergency condition as well as convey pertinent information about other relevant action plans or documents to the workers, surrounding community and local government agencies. Security Personnel 66. The project should hire employees or contractors for the provision of security personnel for the workers and property. The project should also assess the risks within and outside the project site proposed by the security company. In drawing up such arrangements, the project is directed by the principles set out by the police of the Republic of Indonesia in terms of recruitment, training and implementation of security patterns. The management should not order the security officers to take any repressive action. Security Force is used for prevention and security in accordance with the police regulations appropriate with the nature and scope of project security threats. The project should ensure that the safeguarding of personnel and property is carried out in accordance with relevant human rights principles and in a manner that avoids or minimizes risks to the Affected Communities. Dam Safety 67. When PT SMI finances a project that includes the construction of a new dam, it requires that the dam be designed and its construction supervised by experienced and competent professionals; (i) For dams construction larger than 15 meter in height, the project shall appointed panel of expert consist of 3 or more, (ii) For dams less than 15 meters in height, it should be design by competent experts. 15

22 3.5 LAND ACQUISITION AND INVOLUNTARY RESETTLEMENT (ESS-5) 68. Population relocation includes physical displacement and economic displacement (loss of assets or access that results in loss of income sources or livelihood activities) as a result of land acquisition for the project. The population relocation becomes involuntary if the affected individuals or communities do not have the right to refuse the land acquisition and this will lead to the forced relocation. 69. Involuntary resettlement may result in difficult conditions and long-term poverty on the affected people and communities as well as environmental damage and social pressure on their new area if this issue is not managed cautiously. The involuntary resettlement should be avoided or at least minimized. If this is unavoidable, the steps must be mitigated to reduce the negative impact on the relocated people. The steps should be planned and implemented with caution. 70. This applies to all components of the project that result in involuntary resettlement, regardless of the source of financing. It also applies to other activities resulting in involuntary resettlement that in the judgment of the PT SMI, are: i) related to the PT SMI-financed projects with low, middle, and high risks; ii) necessary to achieve its objectives as set forth in the project documents; and iii) carried out, or planned to be carried out, contemporaneously with the project. Objectives 71. The objectives of the Involuntary Resettlement safeguards are: i) To avoid the negative impact or at least minimize the risk of involuntary resettlement. ii) To mitigate the social and economic impacts of harmful land acquisition on the affected people due to the land use by: (i) providing compensation for loss of assets at replacement cost; and (ii) ensuring the resettlement activities are carried out properly by conducting information disclosure, consultation and participation to those affected. iii) To improve or at least restore the livelihoods and standards of living of relocated people. Scope of Application 72. The application of this element is carried out in the process of environmental and social assessment to meet the provisions of Environmental and Social Management System stipulated in the National Regulations relating to land provision that adverse affects the economic, social, or environmental aspects of project activities. Land acquisition creates loss of access to assets or resources or restrictions on land use; thus, those impacts should be avoided, minimized, mitigated, or compensated through a fair process in accordance with a mutual benefit principle. 73. The involuntary resettlement requirements apply to full or partial, permanent or temporary physical displacement (relocation, loss of residential land, or loss of shelter) and economic displacement (loss of land, assets, access to assets, income sources, or means of livelihoods) resulting from (i) involuntary acquisition of land, or (ii) involuntary restrictions on land use or on access to legally designated parks and protected areas. Resettlement is considered involuntary when displaced individuals or communities do not have the right to refuse land acquisition that results in displacement. This occurs in cases where (i) lands are acquired through expropriation based on eminent domain; and (ii) lands are acquired through negotiated settlements, if expropriation process would have resulted upon the failure of negotiation. 74. This element does not apply for voluntary resettlement based on a profitable land transaction. Stipulation Project Design 16

23 75. The project should consider alternative technically and financially feasible project designs to avoid or at least minimize the physical or economic displacement by force. 76. A proposed project is assigned to one of the following categories depending on the significance of the probable involuntary resettlement impacts: (i) Category A: A proposed project is classified as category A if it is likely to have significant involuntary resettlement impacts. A resettlement plan, including assessment of social impacts, is required. (ii) Category B: A proposed project is classified as category B if it includes involuntary resettlement impacts that are not deemed significant. A resettlement plan, including assessment of social impacts, is required. (iii) Category C: A proposed project is classified as category C if it has no involuntary resettlement impacts. No further action is required. (iv) Category FI: A proposed project is classified as category FI if it involves the investment of SMI funds to, or through, a financial intermediary 77. A project involuntary resettlement category is determined by the category of its most sensitive component in terms of involuntary resettlement impacts. The involuntary resettlement impacts of PT SMI project are considered significant if 200 or more persons will experience major impacts, which are defined as (i) being physically displaced from housing, or (ii) losing 10% or more of their productive assets (income generating). The level of detail and comprehensiveness of the resettlement plan are commensurate with the significance of the potential impacts and risks. Compensation, Assistance, and Benefits for People Involuntary Displaced 78. If the forced displacement is unavoidable, the project should offer to the people or communities who are involuntary relocated the land restitution and compensation for loss of assets at land and building replacement cost, removal cost assistance and other assistance to help them improved or at least restore their life dignity and livelihood. 79. People displaced involuntary in a project area consists of three types: (i) persons with formal legal rights to land lost in its entirety or in part; (ii) persons who lost the land they occupy in its entirety or in part who have no formal legal rights to such land, but who have claims to such lands that are recognized or recognizable under national laws; and (iii) persons who lost the land they occupy in its entirety or in part who have neither formal legal rights nor recognized or recognizable claims to such land. The involuntary resettlement requirements apply to all three types of displaced persons. 80. The project will provide adequate and appropriate replacement land and structures or cash compensation at full replacement cost for lost land and structures, adequate compensation for partially damaged structures, and relocation assistance, if applicable, to those persons described in para. 79(i) and 79(ii) prior to their relocation. For those persons described in para. 79(iii), the borrower/client will compensate them for the loss of assets other than land, such as dwellings, and also for other improvements to the land, at full replacement cost. The entitlements of those under para. 79(iii) is given only if they occupied the land or structures in the project area prior to the cutoff date for eligibility for resettlement assistance. 81. The rate of compensation for acquired housing, land and other assets will be calculated at full replacement costs based on the valuation of independent appraiser. The calculation of full replacement cost will be based on the following elements: (i) fair market value; (ii) transaction costs; (iii) interest accrued; (iv) transitional and restoration costs; and (v) other applicable payments, if any. Where market conditions are absent or in a formative stage, the borrower/client will consult with the people relocated by force and host populations to obtain adequate information about recent land transactions, land value by types, land titles, land use, cropping patterns and crop production, availability of land in the project area and region, and other related information. The borrower/client will also collect baseline data on housing, house types, and construction materials. Qualified and experienced experts will undertake the 17

24 valuation of acquired assets. In applying this method of valuation, depreciation of structures and assets should not be taken into account. Physical Displacement 82. If people living in the project area must be relocated to another location, the Project should: (i) offer a choice among possible options to those relocated, including appropriate residence substitution or suitable compensation (ii) provide relocation assistance appropriate to the needs of each relocated group of people with special attention to the needy ones with comparable access to employment and production opportunities, and civic infrastructure and community services as required; (iii) transitional support and development assistance, such as land development, credit facilities, training, or employment opportunities; and (iv) opportunities to derive appropriate development benefits from the project. 83. If indigenous peoples must be relocated physically from their indigenous land, the project must comply with the provisions described in Elements of indigenous peoples and local communities. Economic Displacement 84. If the land acquisition for the project causes loss of income or livelihood, the project should meet the following provisions: i) To provide economic compensation to those relocated over the loss of assets or access to assets at a full replacement cost. ii) If the land acquisition affects commercial structures, the compensation should be given to the business owners over the cost of rebuilding commercial activities in other place and cost of equipment removal, factory re-installation, machinery, or other equipment. iii) To provide land compensation by reference to the full replacement cost wherever possible to the people entitled for the land by showing the legality proof of land, which is approved or can be approved by the National Law. iv) To give economic compensation to the relocated people who do not have legal claim to the land, such as agriculture, infrastructure and irrigation at a full replacement cost according to the applicable national regulations. v) To provide additional assistance such as training or employment opportunities as well as opportunities to improve or restore the ability to obtain a proper livelihood. Social Impact Assessment 85. The project will conduct socioeconomic survey(s) and a census, with appropriate socioeconomic baseline data to identify all persons who will be displaced by the project and to assess the project s socioeconomic impacts on them. For this purpose, normally a cut-off date will be established by the host government procedures. In the absence of such procedures, the project will establish a cut-off date for eligibility. Information regarding the cut-off date will be documented and disseminated throughout the project area. 86. The social impact assessment (SIA) report will include (i) identified past 21, present and future potential social impacts, (ii) an inventory of displaced persons and their assets, (iii) an assessment of their income and livelihoods, and (iv) gender-disaggregated information pertaining to the economic and sociocultural conditions of displaced persons. The project s potential social impacts and risks will be 21 Identifying past potential social impacts would be used as a reference for predicting the future impacts to appear and how to mitigate the impact. The method would be through a due diligence study and the result is the due diligence report and action plan (Environmental and Social Due Diligence Report and Corrective Action Plans ESDD CAP); see annex 13 and 14 of this document. 18

25 assessed against the requirements presented in this document and applicable laws and regulations of the jurisdictions in which the project operates that pertain to involuntary resettlement matters, including obligations under international law. Resettlement Plan and Implementation 87. The project will prepare a resettlement plan, if involuntary resettlement is unavoidable. The project should conduct a census with Environmental and Social Baseline Study to identify those who should be relocated, to determine those entitled to receive compensation and those who are not. The local government must be included as a part of the land acquisition committee. Those relocated involuntary can be classified as persons: (i) having formal legal rights to the occupied land; (ii) having no formal legal rights, but claiming the land, but approved or can be approved by the law or (iii) having no legal right or claim to the occupied land. In the absence of the government procedures, the project will establish a cutoff date for eligibility. Information regarding the cut-off date will be well documented and disseminated throughout the project area. 88. The objective of a resettlement plan is to ensure that livelihoods and standards of living of displaced persons are improved, or at least restored to pre-project (physical and/or economic) levels and that the standards of living of the displaced poor and other vulnerable groups are improved, not merely restored, by providing adequate housing, security of land tenure and steady income and livelihood sources. The level of detail and comprehensiveness of the resettlement plan will be commensurate with the significance of involuntary resettlement impacts. An outline of resettlement plan is provided in the annex 22 of this document. 89. A resettlement plan will be based on the social impact assessment and the existing of spatial planning to find an alternate location through meaningful consultation with the affected persons. A resettlement plan will include measures to ensure that the displaced persons are (i) informed about their options and entitlements pertaining to compensation, relocation, and rehabilitation; (ii) consulted on resettlement options and choices; and (iii) provided with resettlement alternatives. During the identification of the impacts of resettlement and resettlement planning, and implementation, the project will pay adequate attention to gender concerns, including specific measures addressing the need of female headed households, gender-inclusive consultation, information disclosure, and grievance mechanisms, to ensure that both men and women receive adequate and appropriate compensation for their lost property and resettlement assistance, as well as assistance to restore and improve their incomes and living standards. For projects have affected Indigenous People to be relocated, an Indigenous People Plan (IPP) with a Free, Prior, and Informed Consent (FPIC) of the IPs has to be submitted and implemented by the project. Livelihood Restoration Planning and Implementation 90. Where affected persons do not accept the compensations offers that meet the requirement of this guideline, and thus, expropriation or other legal procedures are initiated, the project will explore opportunities to collaborate with the responsible governmental agency or involve intermediary organisations like university, NGO or such organization is trusted to stand impartial, whose when permitted, will play active role in the resettlement planning, implementation and monitoring. 91. Resettlement Action Plan and/or Livelihood Restoration Plan implementation is completed when the adverse impacts of the resettlement have been addressed and consistent with the relevant plan as well as the objectives of this guideline. The project will document all transactions to acquire land rights, as well as compensation measures and relocation activities. The project will also establish procedures to monitor and evaluate the implementation of resettlement plans and take corrective action as necessary. A resettlement will be considered complete when the adverse impacts of resettlement have been addressed in a manner that is consistent with the objectives stated in the resettlement plan or framework as well as the objectives of this guideline. The evaluation will include, at a minimum, the following: i) Review of the totality of mitigation measures implemented by the project; ii) Comparison of implementation outcomes against agreed objectives; and 19

26 iii) Conclusion as to whether the monitoring process can be concluded. Vulnerable People and Gender Considerations 92. The project will be asked to pay particular attention to ensure that vulnerable people and women are the recipients of compensation pertaining to and reflecting their full activities. The project will ensure that women who are de-facto household heads are clearly listed as beneficiaries of compensation and rehabilitation proceedings. In order to ensure the above the following actions will be considered: i) impact assessment will disaggregate the Affected People s gender-wise (or by vulnerable people if appropriate) and will clearly indicate the number of affected women-headed households (or vulnerable people) and their pre-project socioeconomic status; ii) women and vulnerable people will be encouraged to actively participate in all land acquisition resettlement-related consultations and negotiations, to be facilitated by women s groups; iii) when required, special mitigation actions/measures for vulnerable people/ women will be prepared and included in the resettlement plan; iv) all compensation due to woman-headed families will be given to only the women family head, and; v) resettlement plan monitoring and evaluation will pay special attention on the impact of resettlement on women and other vulnerable people. Information Disclosure 93. The project has to submit the following documents to PT SMI for disclosure on the PT SMI s and the project s websites: (i) a draft resettlement plan and/or resettlement framework endorsed by the project before project appraisal; (ii) the final resettlement plan endorsed by the project after the census of affected persons has been completed; (iii) a new resettlement plan or an updated resettlement plan, and a corrective action plan prepared during project implementation, if any; and (iv) the resettlement monitoring reports. The project will provide relevant resettlement information, including information from the documents in a timely manner, in an accessible place and in a form and language(s) understandable to affected persons and other stakeholders. For illiterate people, suitable other communication methods will be used. Consultation 94. The project will conduct meaningful consultation with affected persons, their host communities, and civil society for every project and subproject identified as having involuntary resettlement impacts. Meaningful consultation is a process that (i) begins early in the project preparation stage and is carried out on an ongoing basis throughout the project cycle; (ii) provides timely disclosure of relevant and adequate information that is understandable and readily accessible to affected people; (iii) is undertaken in an atmosphere free of intimidation or coercion; (iv) is gender inclusive and responsive, and tailored to the needs of disadvantaged and vulnerable groups; and (v) enables the incorporation of all relevant views of affected people and other stakeholders into decision making, such as project design, mitigation measures, the sharing of development benefits and opportunities, and implementation issues. Consultation will be carried out in a manner commensurate with the impacts on affected communities. The borrower/client will pay particular attention to the need of disadvantaged or vulnerable groups, especially those below the poverty line, the landless, the elderly, female-headed households, women and children, Indigenous Peoples, and those without legal title to land. 95. The project management should facilitate the grievance mechanism and open the opportunity to participate in the project for the affected people due to the land acquisition. This also requires the involvement of the local government in the decision-making processes related to the resettlement including the monitoring and evaluation of restitution and other compensation payment. 96. In relation to the resettlement and livelihood restoration processes, the project will apply a decisionmaking process that includes options and alternatives, where applicable. Project disclosure will continue 20

27 during the implementation, monitoring, and evaluation of compensation payment, livelihood restoration activities and resettlement to achieve outcomes that are consistent with the objectives of this guideline. Grievance Mechanism 97. The project should establish a mechanism of meetings to accommodate grievance and discuss specific issues about compensation and relocation arising from forcibly displaced people or members of the local community, including settlement mechanism to solve problems, paying particular attention to the impacts on vulnerable groups. The grievance redress mechanism should be scaled to the risks and adverse impacts of the project. It should address affected persons concerns and complaints promptly, using an understandable and transparent process that is gender responsive, culturally appropriate, and readily accessible to the affected persons at no costs and without retribution. The mechanism should not impede access to the country s judicial or administrative remedies. The project will inform affected persons about the mechanism. Monitoring and Reporting 98. The project will monitor and measure the progress of implementation of the resettlement plan. The extent of monitoring activities will be commensurate with the project s risks and impacts. In addition to recording the progress in compensation payment and other resettlement activities, the project will prepare monitoring reports to ensure that the implementation of the resettlement plan has produced the desired outcomes. For projects with significant involuntary resettlement impacts, the project will retain qualified and experienced external experts or qualified NGOs to verify the project s monitoring information. The external experts engaged by the project will advise on safeguard compliance issues, and if any significant involuntary resettlement issues are identified, a corrective action plan will be prepared to address such issues. Until such planning documents are formulated, disclosed and approved, the project will not proceed with implementing the specific project components for which involuntary resettlement impacts are identified. 99. The project will prepare semiannual monitoring reports that describe the progress of the implementation of resettlement activities and any compliance issues and corrective actions. These reports will closely follow the involuntary resettlement monitoring indicators agreed at the time of resettlement plan approval. The costs of internal and external resettlement monitoring requirements will be included in the project budget. 3.6 BIODIVERSITY CONSERVATION AND NATURAL RESOURCES MANAGEMENT (ESS-6) 100. The protection and conservation of biodiversity, the variety of life in various forms, including genetic, species and ecosystem diversity are critical to sustainable development. Biodiversity components comprise of ecosystems and habitats, species and communities. This element stresses on how the project can avoid or mitigate threats to biodiversity that may arise from project operations as well as how to manage the natural resources that aims to conserve biodiversity and to encourage the planned and directed use of natural resources in a sustainable manner As detailed in the Annex 1 PT SMI investment Exclusion List, PT SMI will not finance projects that cause and involve, or indirectly lead to: 21

28 i) the conversion or degradation of critical 22 or natural habitats unless 23 : a. for natural habitats i. No alternatives are available. ii. A comprehensive analysis demonstrates that the overall benefits from the project will substantially outweigh the project costs, including environmental costs. iii. Any conversion or degradation is appropriately mitigated. b. Mitigation measures will be designed to achieve at least no net loss of biodiversity. They may include a combination of actions, such as post-project restoration of habitats, offset of losses through the creation or effective conservation of ecologically comparable areas that are managed for biodiversity while respecting the ongoing use of such biodiversity by Indigenous Peoples or traditional communities, and compensation to direct users of biodiversity. c. For critical habitats i. There are no measurable adverse impacts, or likelihood of such, on the critical habitat which could impair its high biodiversity value or the ability to function. ii. The project is not anticipated to lead to a reduction in the population of any recognized endangered or critically endangered species6 or a loss in area of the habitat concerned such that the persistence of a viable and representative host ecosystem be compromised. iii. Any lesser impacts are mitigated in accordance with para. B above. ii) the conversion, clearance, burning or commercial or small-holder logging operations or purchase of logging equipment for use in primary tropical moist forest or old-growth forests, whether within or outside protected areas or forest reserves, or involve the production or trade in wood products from these forests; iii) the destruction, vegetation-clearance, drainage or burning of deep tropical peat lands (deeper than 3 m by law, and deeper than 2 m to allow buffer to deep peat), or the commercial or smallholder logging, plantation or agricultural developments on deep peat lands (peat deeper than 3 m); iv) the destruction, vegetation-clearance, drainage or burning of freshwater wetlands; v) the destruction, vegetation-clearance, drainage or burning of mangrove forests; or vi) the mining or excavation of live coral, conduct of development which will disturb or degrade live coral habitats. Objectives i) To protect and conserve biodiversity. ii) To encourage sustainable development and natural resources utilization by applying integrated conservation. 22 Critical habitats are defined as any habitat which is essential to support populations of threatened (IUCN red list, national law protected or CITES listed) or endemic animal or plant species, Including also locally or nationally rare and threatened vegetation habitats and habitats which have high value for provision of other ecoystem services (e.g. flood protection, erosion and landslide protection, catchment function support and water resources provision). 23 See ADB SPS

29 Scope of Application 102. The application of this element is performed in the process of environmental and social assessment to meet the provisions of Environmental and Social Management System stipulated in State Regulations relating to biodiversity and natural resources conservation. Stipulation Habitat 103. Habitat destruction constitutes the main threat to biodiversity. Habitat can be divided into 1/ natural habitat, namely land and water as the biological communities composed by indigenous plant and animal environment without human interference and 2/modified habitat, namely habitat having been transformed with the presence of non-indigenous plant and animal species. Both types of habitat can support diversity at all levels, including endemic or threatened species. Critical Habitat 104. Critical habitat is a part of natural and modified habitat which requires special attention (see definition in footnote 43 above). The critical habitat covers areas 24 with high biodiversity value, including habitat required for the survival of critically endangered or endangered species; areas having special significance for endemic or restricted-range species; sites that are critical for the survival of migratory species; areas supporting globally significant concentrations or numbers of individuals of congregatory species; areas with unique assemblages of species or that are associated with key evolutionary processes or provide key ecosystem services; and areas having biodiversity of significant social, economic, or cultural importance to local communities In the area of critical habitat, the project should implement project activities considering 25 : (i) there are no measurable adverse impacts on the critical habitat that could impair its ability to function, (ii) there is no reduction in the population of any recognized endangered or critically endangered species, and (iii) any lesser impacts are mitigated. If a project is located within a legally protected area, implement additional programs to promote and enhance the conservation aims of the protected area. In an area of natural habitats, there must be no significant conversion or degradation, unless (i) alternatives are not available, (ii) the overall benefits from the project substantially outweigh the environmental costs, and (iii) any conversion or degradation is appropriately mitigated. Use a precautionary approach to the use, development, and management of renewable natural resources. Area Protected by Law 106. If the project is located in an area protected by law, the project management should meet the following provisions: i) To act consistently related to the protected area management plan. ii) To facilitate a forum for communication and consultation between stakeholders (including protected area management) and the community in the area. iii) To implement additional programs to promote and achieve the objectives of protected conservation area. iv) Not to deliberately introduce newly non-indigenous species in the project area, unless it gets permission from the authorities. Natural Forest and Protected Forest 24 See ADB SPS See ADB SPS

30 107. As detailed in the PT SMI exclusion list outlined above, if the project is located in the area of natural forest within or outside of forest reserves, or a protected forest, the project must obtain permits from the authorities and the project should not cause any conversion or degradation of critical habitat, moist tropical forests, old growth forests, mangrove forests, freshwater wetland forests of any kind, inclusive of peat swamp forest. Additionally, the project must ensure that all natural and protected forest ecosystems and deep peatlands (with peat deeper than 3 m) are not directly or indirectly converted, degraded, burned, drained or developed in any way. Use of Surface Water and Groundwater 108. The project that requires the use of surface water and ground water should assess the environmental and social issues and mitigate the risks that may arise. All use of surface water and groundwater requires permission from the authorities before using. 3.7 INDIGENOUS PEOPLES AND LOCAL COMMUNITIES (ESS -7) 109. Indigenous peoples and local communities 26 are the social groups with identities that may be different from the dominant groups in societies. Their economic, social and legal status is limited to defending their interests and rights on land, natural resources and culture. They also have the limitations to participate in and get benefit from development. They are vulnerable, especially if their land and resources are used by outsiders and degraded significantly. The language, culture, and natural resources as the main pillar of their livelihood can be threatened and exposed to changes by the outer community The project can open opportunities for the indigenous peoples and local communities to participate and get benefits from the project activities so as to help meet their aspirations for economic and social development. They can also play a role in sustainable development by promoting and managing activities and business as co-development In projects with adverse impacts on affected communities of Indigenous Peoples, the consultation process will ensure their Free, Prior, and Informed Consent (FPIC) and facilitate their informed participation on matters that affect them directly, such as proposed mitigation measures, the sharing of development benefits and opportunities, and implementation issues FPIC applies to project design, implementation, and expected outcomes related to impacts the communities of Indigenous Peoples. When any of these circumstances apply, the client will engage external experts to assist in the identification of the project risks and impacts. To achieve FPIC, unanimity is not necessarily required. FPIC can also be achieved when individuals or groups within community explicitly disagree; for some case with have no solution, an intermediary organisations should be involved. The following should be documented: (i) mutually accepted process between the project and Affected Communities; and (ii) agreement evidence between parties as the outcome for the negotiations 27. Objectives i) To protect and assist indigenous peoples and local communities from the development effects which are not in accordance with their educational, social and cultural levels. ii) To encourage indigenous and local communities as co-development and get social and economic benefit from the project. Scope of Application 26 Local communities refers as the presence of the inhabitants residing on the impacted project in accordance with the AMDAL definition or other related project studies 27 More detail about FPIC could be found in the Chapter 5, section 5.3 Indigenous People Consultation and Consent Procedures of this document 24

31 113. The application of this element is performed in the process of environmental and social assessment to meet the provisions of Environmental and Social Management System stipulated in State Regulations relating to the indigenous peoples and local communities Indigenous Peoples is used in a generic sense to refer to a distinct, vulnerable, social, and cultural group possessing the following four characteristics in varying degrees: i) self-identification as members of a distinct indigenous cultural group and recognition of this identity by others; ii) collective attachment to geographically distinct habitats or ancestral territories in the project area and to the natural resources in these habitats and territories; iii) customary, cultural, economic, social, or political institutions that are separate from those of the dominant society and culture; and iv) a distinct language, often different from the official language of the country or region. Stipulation Project Design 115. A proposed project is assigned to one of the following categories depending on the significance of the potential impacts on Indigenous Peoples: (i) Category A. A proposed project is classified as category A if it is likely to have significant impacts on Indigenous Peoples. An Indigenous Peoples plan (IPP), including assessment of social impacts, is required. (ii) Category B. A proposed project is classified as category B if it is likely to have limited impacts on Indigenous Peoples. An IPP, including assessment of social impacts, is required. (iii) Category C. A proposed project is classified as category C if it is not expected to have impacts on Indigenous Peoples. No further action is required. (iv) Category FI. A proposed project is classified as category FI if it involves the investment of ADB funds to, or through, a financial intermediary (v) Prevention of Adverse Impacts 116. Through the Social and Environmental Assessment process, the project should identify all indigenous peoples and local communities who may be affected within the project area, as well as the nature and levels of estimated social, cultural and environmental impact on them and prevent negative impacts as best as possible If the prevention seems impossible, the project management should minimize, mitigate, or compensate for these impacts in accordance with existing local culture wisdom. Information, Consultation and Participation Notification 118. The project will undertake meaningful consultation with affected Indigenous Peoples to ensure their informed participation in (i) designing, implementing, and monitoring measures to avoid adverse impacts on them or, when avoidance is not possible, to minimize, mitigate, and compensate for such effects; and (ii) tailoring project benefits that accrue to them in a culturally appropriate manner. Meaningful consultation is a process that (i) begins early in the project preparation stage and is carried out on an ongoing basis throughout the project cycle; (ii) provides timely disclosure of relevant and adequate information that is understandable and readily accessible to affected people; (iii) is undertaken in an atmosphere free of intimidation or coercion; (iv) is gender inclusive and responsive, and tailored to the needs of disadvantaged and vulnerable groups; and (v) enables the incorporation of all relevant views of affected people and other stakeholders into decision making, such as project design, mitigation measures, the sharing of development benefits and opportunities, and implementation issues. Consultation will be 25

32 carried out in a manner commensurate with the impacts on affected communities. The consultation process and its results will be documented and reflected in the Indigenous Peoples plan (IPP) The project should build an ongoing relationship with the affected indigenous peoples or local communities as early as possible during the project planning and operation. The community engagement process must be in accordance with the culture as well as the potential risks and impacts on indigenous peoples. The process includes the following steps: i) To include the representative body of indigenous peoples, namely associations of village elder, village groups, chieftain and village leaders. ii) To provide necessary time for indigenous peoples to conduct the Consensus and Democracy process in decision-making. iii) To facilitate indigenous peoples to express their views in their own culture and language, without any interference, coercion or intimidation. Social Impact Assessment 120. If screening by PT SMI confirms likely impacts on Indigenous Peoples, the project will retain qualified and experienced experts to carry out a full social impact assessment (SIA), and if impacts on Indigenous Peoples are identified, the project will prepare an IPP in conjunction with the feasibility study. The project s potential social impacts and risks will be assessed against the requirements presented in this document and applicable laws and regulations of the jurisdictions in which the project operates that pertain to Indigenous Peoples matters, including obligations under international law Based on the screening, a field-based SIA will be conducted either as part of the feasibility study or as a stand-alone activity. The SIA will, in a gender-sensitive manner, in consultation with Indigenous Peoples communities, identify the project-affected Indigenous Peoples and the potential impacts of the proposed project on them. The SIA will provide a baseline socioeconomic profile of the indigenous groups in the project area and project impact zone; assess their access to and opportunities to avail themselves of basic social and economic services; assess the short- and long-term, direct and indirect, and positive and negative impacts of the project on each group s social, cultural, and economic status; assess and validate which indigenous groups will trigger the Indigenous Peoples policy principles; and assess the subsequent approaches and resource requirements for addressing the various concerns and issues of projects that affect them. Indigenous Peoples Planning 122. If the screening and SIA indicate that the proposed project will have impacts, positive and/or negative, on Indigenous Peoples, the project will prepare an IPP in the context of the SIA and through meaningful consultation with the affected Indigenous Peoples communities. The IPP will set out the measures whereby the borrower/client will ensure (i) that affected Indigenous Peoples receive culturally appropriate social and economic benefits; and (ii) that when potential adverse impacts on Indigenous Peoples are identified, these will be avoided to the maximum extent possible. Where this avoidance is proven to be impossible, based on meaningful consultation with indigenous communities, the IPP will outline measures to minimize, mitigate, and compensate for the adverse impacts. An outline of IPP is provided in the annex 24 of this document. Ancestral Domains and Lands and Related Natural Resources 123. Indigenous Peoples are closely tied to land, forests, water, wildlife, and other natural resources, and therefore special considerations apply if the project affects such ties. In this situation, when carrying out the social impact assessment and preparing the IPP, the project will pay particular attention to the following: (i) the customary rights of the Indigenous Peoples, both individual and collective, pertaining to ancestral domains, lands, or territories that they traditionally own or customarily use or occupy, and where access to natural resources is vital to the sustainability of their cultures and livelihood 26

33 systems; (ii) the need to protect such ancestral domains, lands, and resources against illegal intrusion or encroachment; (iii) the cultural and spiritual values that the Indigenous Peoples attribute to such lands and resources; (iv) the Indigenous Peoples natural resources management practices and the long- term sustainability of such practices; and (v) the need to rehabilitate the livelihood systems of Indigenous Peoples who have been evicted from their lands. Impact on the Used Traditional Land or Indigenous Land 124. Indigenous peoples and/or local communities are often associated with traditional or indigenous land. When the land is not legally owned based on the State Law, the land use, which includes the seasonal-basis use by indigenous communities for their lives or for cultural, ceremonial or spiritual purposes by showing their identity and communities, can be justified as a proof and documentation of the land If the project is located in an area where there are natural resources therein, the project management should appreciate the use of traditional or indigenous land by indigenous peoples and local communities, by performing below steps: i) To make efforts to avoid or at least minimize the size of land proposed for the project. ii) To define the use of indigenous lands by involving the government and the village leaders of the affected indigenous peoples. iii) To inform the rights to land under the State Law to the affected indigenous peoples and local communities, including the State Law that acknowledges the right or use of indigenous land. iv) To offer at least compensation in the form of land replacement or additional benefits to the affected indigenous peoples and local communities, if possible. Relocation of Indigenous Peoples from Traditional Land or Ancestor Land 126. The project should consider the feasibly alternative project designs to avoid the relocation of indigenous peoples from their traditional or indigenous land. If the relocation is unavoidable, the project may be carried out after obtaining permission from village leaders or representative of the indigenous people that had been mandated to voice on behalf of the indigenous people through FPIC process. Information Disclosure 127. The project has to submit the following documents to PT SMI for disclosure on the PT SMI s and the project s websites: (i) a draft IPP and/or Indigenous Peoples planning framework, including the social impact assessment, endorsed by the borrower/client, before appraisal; (ii) the final IPP upon completion; (iii) a new or updated IPP and a corrective action plan prepared during implementation, if any; and (iv) the monitoring reports. Grievance Redress Mechanism 128. The project will establish a mechanism to receive and facilitate resolution of the affected Indigenous Peoples communities concerns, complaints, and grievances. The grievance mechanism will be scaled to the impacts of the project. It should address concerns and complaints promptly, using an understandable and transparent process that is culturally appropriate, gender responsive, and accessible to the affected Indigenous Peoples communities at no cost and without retribution. The mechanism should not impede access to the country s judicial or administrative remedies. The affected Indigenous Peoples communities will be appropriately informed about the mechanism. Monitoring and Reporting 27

34 129. The project will monitor and measure the progress of implementation of the IPP. The extent of monitoring activities will be commensurate with the project s risks and impacts. In addition to recording information to track performance, the borrower/client should use dynamic mechanisms, such as inspections and audits, to verify compliance with requirements and progress toward achieving the desired outcomes. For projects with significant adverse impacts on Indigenous Peoples, the project will retain qualified and experienced external experts or qualified NGOs to verify monitoring information. The external experts engaged by the project will advise on compliance issues, and if any significant Indigenous Peoples issues are found, the project will prepare a corrective action plan or an update to the approved IPP. The project will implement the corrective actions and follow up on these actions to ensure their effectiveness. 3.8 CULTURAL HERITAGE (ESS-8) 130. Culture is passed down for present and future generations. To be in consistent with the Act on Cultural Preserve, which aims to preserve the national cultural heritage, the Company emphasizes social responsibility in its projects and business operations by protecting the cultural heritage. Objectives i) To protect cultural heritage from negative impacts of project activities and support its preservation. ii) To encourage the project management s responsibility in its business activities by protecting the cultural heritage around the project area. Scope of Application 131. The application of this element is performed in the process of environmental and social assessment to meet the provisions of Environmental and Social Management System stipulated in State Regulations relating to the Cultural Preserve The cultural heritage refers to the measured forms, such as the property and location having the archaeological (prehistoric), paleontological, historical, cultural, artistic, and religious values, as well as part of a unique natural environment containing cultural values, such as sacred forest. It also includes traditional lifestyles practiced by indigenous peoples and local communities around the project. Stipulation Protection of cultural site 133. If the location of the proposed project is estimated to have a cultural heritage site (whether defined by national law, local authorities site listing or by traditional practice of local and indigenous communities), wherever possible, the project location should be moved to the technically and financially appropriate place. If it is impossible, the project management should implement the working procedures that will not harm and disturb the cultural site and chance finds procedures. Chance finds shall not be disturbed until an assessment by a competent specialist is made and actions consistent with these requirements are identified. The assessment by competent experts or recommendation of the local government and local community traditional leaders (ketua adat) should be obtained if there is still any doubt in doing these safeguards. Regional Cultural Heritage 134. Most cultural heritage is best protected or preserved in its original location. The project should not relocate or eliminate all forms of cultural heritage, unless there is no other appropriate technical or financial alternative. This can be done after the assessment of experts, consultation with cultural stakeholders of indigenous peoples or local communities and local governments. Critical Cultural Heritage 28

35 135. Critical cultural heritage consists of (i) cultural practices of indigenous people from generation to generation (ii) legally protected cultural preserve The project should not significantly alter, damage, or remove various forms of cultural heritage. The legally protected cultural heritage is an important part for the protection and conservation of cultural heritage. If the project is built in an area around the cultural heritage, additional measures are required, including the permits from the government, consultation with the indigenous peoples, also protection measures based on recommendations from the competent experts and implementation of additional appropriate programs to promote and achieve the purpose of the protected area. Commercial Use of Cultural Heritage 137. If the project uses the cultural resources, insight or practices of local communities having the traditional lifestyles for commercial purposes, the project must inform the communities about: (i) their legally protected rights; (ii) the proposed commercialization scope and nature. The project should not process the commercialization, unless (i) having a decent negotiation with the affected local communities. (ii) obtaining written approval from the indigenous peoples and local government (iii) dividing the fair and equitable result from the commercialization of insight, innovations, or practices of customs and cultural traditions. 3.9 ENERGY CONSERVATION AND ENVIRONMENT FRIENDLY ENERGY (ESS-9) 138. Energy conservation is one of important elements in the environment and social safeguards. Efficient energy use will generate physically and financially profits. The Company also strongly encourages the use of green or environmentally friendly and promotes new and renewable energy projects as part of environmental and social responsibility. Environmentally friendly energy is an important aspect of sustainable development and also one of the important issues in the campaign of climate change and in carbon reduction in accordance with the government regulations The project should have energy saving policies by conducting the environmental and social assessment that can be done alone or through a competent third party as an effort to increase efficiency and profits by doing overall saving in the project activities. If the energy conservation is impossible in the project activities, the use of energy-saving equipment and an effort to minimize the use of energy are important to be done as a part of reducing emission coming from the project activities. Saving activity is an important part of preventing or mitigating climate change. Objectives i) To support energy conservation as a saving effort in the resources use in order to safeguard natural resources and encourage the planned and directed resources use in a sustainable manner. ii) To encourage the sustainable development and energy use through an integrated application of conservation having the development priorities. iii) To promote the development of environmentally-friendly green energy facilities which areas an effort to increase new and renewable energy. Scope of Application 140. The application of this element is performed in the process of environmental and social assessment to meet the provisions of Environmental and Social Management System stipulated in State Regulations relating to energy conservation and environmentally-friendly green as well as new and renewable energy. Stipulation Energy Conservation 141. Energy conservation (saving) is the act of reducing the amount of energy usage or optimal use of energy as needed so that the incurred energy costs can be lower. The energy saving can be achieved by 29

36 efficient energy use of which same benefits can be obtained by using less energy, or by reducing the consumption and project activities that use energy. The energy saving can lead to reduced costs as well as increase environmental and social values. Environment Friendly Energy 142. Energy saving also facilitates the replacement of non-renewable sources with renewable ones. In facing the lack of energy, the energy saving is often the most economical way and a more environment friendly way instead of increasing the energy production. In line with the increasingly limited natural resources, energy crisis and the declining capacity of the environmental support, the demand to develop an environment-friendly industry, known as environment friendly green energy has become an important issue. In addition to the policy efforts to address the increasingly serious energy shortage and the growth of extremely high energy, the development of alternative new and renewable energy sources, which are environmentally friendly is also absolutely to be encouraged CONSULTATION AND GRIEVANCE MECHANISM (ESS-10) 143. Consultation is a procedure of giving information to stakeholders of a project early on in the development process to (i) plan, implement, and monitor steps to avoid negative impacts, or, if it is unavoidable, to minimize, mitigate and compensate for such impacts; and (ii) inform the project benefits to them in a way that is in accordance with the customs and culture of the community. (iii) provide timebound, understandable, easily accessible, relevant and adequate information to the community; (iv) conduct all these in an atmosphere free from intimidation or coercion; (v) to be inclusive and gendersensitive and adjusted to the local customs and traditions. The project must respond to the concerns raised by stakeholders. Objectives i) To encourage the information transparency and encourage the participation of community and other stakeholders as fair and profitable consulting efforts. ii) To encourage community participation in sustainable development in the affected area. iii) As an effort to facilitate the culture of Consensus and Democracy in the project and affected communities as a grievance mechanism. Scope of Application 144. The application of this element is performed in the process of environmental and social assessment to meet the provisions of Environmental and Social Management System stipulated in State Regulations relating to disclosure of information, Consensus and Demography as well as the regulations of freedom to express opinions. Stipulation Consultation Mechanism 145. The project forms a consultation mechanism with local governments to respond the grievance of the affected residents or local community. The consultation mechanism should not hamper access to legal or administrative solution in an area. The affected residents or local community will be given proper information about the mechanism. If affected residents or local community have differences of opinion and disagreements about the project, the project management should well negotiate to resolve differences and disagreements through consultation efforts, which could be established and facilitated by the local government. Grievance Mechanism 146. The project should establish a mechanism to receive and facilitate solutions for problems and grievance of affected residents or local communities, be they environmental or social. Grievance 30

37 mechanism should have a scale comparable to the impact of the project and may address problems and grievance quickly by using an understandable and transparent process in line with the culture and gender sensitivity, and can directly be reached by the affected residents or local communities without any cost. The mechanism should not hamper the access to judicial or administrative solution in an area. The affected local residents or communities will be given information about the proper mechanism. Disclosure of Information 147. The project will provide relevant information, including information from the project social and environmental management documents in accordance with regulations that apply to the determined places. If the affected local residents or communities and other stakeholders do not have the literacy ability, other proper communication methods can be used. Monitoring and Reporting 148. The project should compile periodic monitoring reports on environmental and social management in accordance with applicable regulations as well as submit the compliance issues and corrective actions in a transparent manner. 31

38 4. Environmental and Social Safeguard Operational Procedures 4.1 Environmental Assessment and Review Framework Assessment Aims and Objectives 149. The operating procedures are the core implementation processes in the ESMF which ensure the project-cycle compliance to social and environmental regulations. These procedures encompass the investment subproject screening, categorization, assessment and planning requirements, with aim to minimize and manage the environmental and social impacts of the projects supported by PT SMI. The key elements covered by these operating procedures include the guidance for the: i) safeguard criteria used in selecting projects ii) screening and categorization steps for projects; iii) social and environmental assessment steps (the system to explain the anticipated environmental, social and indigenous people impacts and risks of projects,, both positive and negative); iv) development of social and environmental management programs (a system to manage the environmental and social risks and impacts, with aim to remove or suitably mitigate any negative impacts, and enhance any positive impacts); v) specified implementation requirements and covenants; vi) supervision, review, monitoring and reporting procedures; and vii) emergency preparedness and response procedures Under the broader operational heading of the overall ESMF, these procedures are variably defined as a Social and Environmental Assessment and Management System (SEMS) by World Bank (SMI, 2016a), social and environmental operating procedures (IIF, 2014), an Environmental and Social Management System (ESMS) (ADB, 2009) and an Environmental Assessment and Review Framework 28 (EARF) (ADB, 2012) This chapter outlines the steps and actions that are mandated as per the ESMF, which fall under the above assessment headings, and which are to be followed during the project cycle comprising of the following four stages: (i) Loan application stage - In this stage, procedures required to determine if a loan application can be made, as compared against an environmental and social exclusion list; (ii) Preliminary review stage In this stage, all procedures required before the in-principal approval of the project, are carried out; (iii) Project appraisal and sanction stage - In this stage, all procedures required before the project is appraised for funding are performed. It includes a detailed appraisal of the project to be funded; (iv) Post loan signing and Post Operation Monitoring stage - In this stage, all procedures required for project monitoring during implementation as well as at the end of funds disbursement period are performed. Subsequently, these procedures are followed during the project operation cycle until PT SMI exits the investment Loan Application Stage Loan Application Stage 152. The screening and categorization of projects begins at the loan application stage, where a project identification stage will be carried out through a dialogue with the private or public sector developer regarding the project, its need and PT SMI s requirements. 28 The EARF is specifically mandated by ADB to be developed for sector lending, multi-tranche funding facilities (MFFs), emergency assistance loans and loans for projects in conflict areas. 32

39 153. This is the first step in the project life cycle, which will eventually lead to a decision with respect to the acceptance of the new proposal for a detailed appraisal. This is also the first step in the ESS compliance and management process with aim to: i) Initially assess relevant potential environmental and social impacts and risks associated with the proposed project; and ii) Initially assess the compliance of the proposed project against applicable PT SMI and MFI requirements and environmental laws and regulations of the jurisdictions in which the project operates The ESS steps at this opening stage, for type 1 (early stage), type 2 (fully prepared), type 3 (under construction) and type 4 (fee-based advisory services) projects as listed in Section 2.3.3, will include the following activities to be implemented by PT SMI and the developer: i) Verify that the proposed business activity based on the information provided by the developer is not on the list of prohibited or excluded investments (see ESS OM Section 4.2 and Annex 1 Exclusion List); ii) Request the developer to complete the environmental and social initial screening checklist (see Annex 5 for format); and iii) Obtain basic project information from the developer from the initial screening checklist and report to ST SMI management (see Annex 6 Social and Environmental Project Information Sheet for format) Initial Screening and Impact Assessment Procedures 155. Project preliminary review, screening and categorization are to be undertaken in accordance with PT SMI and MFI requirements, and any applicable national conditions. This is the second step in the ESS compliance and management process with aim to: i) provide an initial indication of the significance of the project s potential environmental and social impacts and risks; ii) further assess and categorize the compliance of the proposed project against applicable PT SMI and MFI requirements and environmental laws and regulations of the jurisdictions in which the project operates; iii) consider the sensitivity and magnitude of the potential environmental and social impacts as a result of the project type, location, and scale (during construction and operation), and provide an environment category for the proposed project which is determined on the basis of the project s most environmentally sensitive component; iv) Identify the type and extent of environmental and social assessment and institutional resources required for environmental assessment and planning, commensurate with the impacts and risks of the project to be financed; and v) Incorporate impact avoidance and mitigation measures early into the project design process so that they can be easily accommodated The ESS steps at this preliminary review and initial screening stage will include: 157. For type 1 (early stage of preparation) projects: i) Perform initial screening of project activities and identify potential environmental and social impacts using the environmental and social checklists for the infrastructure projects (see Annex 32). Also, to assess whether the activities involve land acquisitions, involuntary resettlements, affect indigenous people or ethnic minorities (Screening checklist in Annex 9); ii) On the basis of this initial assessment, the proposed investment is classified as category A, B, C (refer to Annex 8 for Social and Environmental Screening Categories) and the corresponding level of environmental assessment i.e. Initial Environmental Examination (IEE) (outline shown in Annex 33

40 18), Environmental Impact Assessment (EIA) (outline shown in Annex 19) or Environmental Management Plan (outline shown in Annex 20); iii) Review of the client/developer and projects compliance with ESS policies and ESMF in regard to organization capacity and competency, requirement for trainings, preparation of emergency situations response and preparedness procedures, plan for community engagement and plan for monitoring, reviewing, and reporting. All procedures and steps requiring to be added to the project EMP; iv) If the project involves resettlement, ascertain the requirement for a Resettlement Action Plan - RAP (see Principle 5 in Section 3 summary, and Annex 3 MFI principles and objectives). If the project involves impacts on Indigenous People, then ascertain the requirement for an Indigenous People Development Plan - IPDP (see Principle 7 in Section 3 summary, and Annex 3 MFI principles and objectives); v) Advise and provide guidance to the client or developer on the types of social and environmental management plans that need to be prepared and consultation and disclosure requirements prior to project appraisal; and vi) If the project qualifies after initial review, submit the proposal to the Director, Risk Management Division - after incorporating the observations based on the preliminary review (see Annex 6 for example social and environmental project information sheet). The Director, Risk Management Division, will then record his/her own observations while signing the Agreement in Principle (AIP) 29 with the client or developer, and submit a Memo to the PT SMI Board of Directors (see Annex 11 outline. The Social and Environment Management Unit will follow-up to submit the final revised memo to the PT SMI Board of Directors for final review and approval For type 2 and 3 (fully prepared or under construction) projects, as specified in Section above, PT SMI will: i) Carry out a due diligence of the categorizing, assessments, analyses, design documents, etc., that have been prepared by the client or developer; ii) Carry out a due diligence to confirm that: (a) the subproject is in compliance with all applicable national environmental and social laws and regulations and the ESMS/EARF; (b) there are no reputational risks for the PT SMI; and (c) there are no legacy issues or no pending legal disputes or liabilities. Based on the findings of such an assessment, the PT SMI will ask its clients to implement remedial measures, if needed, or to mitigate potential reputational risks or to address legacy issues or liabilities; and iii) Review all available ESS assessment documents. Where gaps exist between existing documents and PT SMI s ESS requirements, PT SMI will ask its clients or developers to supplement these documents or develop new ones to meet the ESMS/EARF requirements. Depending on the nature of the additional documentation, it will be subject to consultation and disclosure requirements of the GoI and of PT SMI, as set forth in the PT SMI Principle 1 (see Section 3) and any specific requirements associated with the type of documentation in question (refer to Annexes 18,19, 20, 22 and 24) For type 4 (advisory services provided) projects, PT SMI will ensure that all advisory services are provided in a manner that is consistent with the objectives of PT SMI ESS policies. 29 The AIP is an agreement between the PT SMI (Director, Risk Management Division) and the potential client/developer that the proposed project may be proceed with appraisal provided that social and environmental safeguards instruments will be prepared, or corrective actions are carried out prior to appraisal. These documents will be submitted to PT SMI together with other technical, financial, procurement-related documents as one appraisal package documents. The AIP may also contain agreements on what the clients need to prepare or fulfill the next steps for applying for project funding from PT SMI, which could include technical, financial, and/or procurement-related aspects. 34

41 4.1.4 Detailed Project Appraisal 160. The project detailed appraisal is to be undertaken in accordance with PT SMI and MFI requirements, and any applicable national conditions. This is the third step in the ESS compliance and management process with aim to: i) provide a detailed indication of the significance of the project s potential environmental impacts and risks; ii) conduct the safeguards categorization, detailed environmental and social assessment and planning, and allocate institutional resources as required and as commensurate with the impacts and risks of the project to be financed; and iii) develop the detailed plans for the impact avoidance and mitigation measures which need to be incorporated into the project detailed design process and implementation schedules The ESS steps at this detailed project appraisal stage for all projects will include (see Annex 10 for specific assessment for Types 2, 3 and 4 projects): i) Scoping: identification of significant potential project impacts (environmental and social), and provide a clear focus for the environmental assessment, and outline the content of the assessment report and important studies in the form of terms of reference (see Annexes 15, 16, and 17 for ToR examples for environmental and social assessment studies, EIA and RAP); ii) Analysis of Alternatives: consideration of all feasible alternatives for improving project implementation and outcomes, taking account of economic, financial, technical, environmental and social factors; iii) Project Description: summary of the project site (inclusive alternative sites and supporting / temporary construction sites 30 ), design, and operation details to provide an understanding of the project, its activities, and environmental impacts; iv) Policy, Legal and Administrative Framework: description of the relevant national and local laws, and regulations and policies that the project is subject to, as well as the standards and guidelines that apply, including MFI requirements (see Annex 2 and 3) ; v) Baseline Environment: description of the current environmental and social conditions, with focus on features that relate to potential project impacts. This description is quantitative, where possible, providing the data required for detailed impact analysis; vi) Impact and Risk Assessment: analysis in an integrated manner all potential project impacts on physical, biological, socioeconomic and physical cultural resources, and identification and addressing of the risks, inclusive of cumulative impacts across multiple subproject development sites, inclusive of cumulative impacts across multiple subproject development sites, inclusive of selected and alternative subproject sites, inclusive of on-site/direct, adjacent/indirect, downstream/indirect and autonomous development/indirect impacts, including positive and negative impacts. Plus, in terms of institutional capacity and commitment to manage these environmental impacts (see Annex 8 and 9); vii) Environmental Management Plan (EMP): a detailed outline of the proposed impact mitigation measures for environmental, resettlement, indigenous peoples and social risks, and both positive and negative impacts (as detailed above), management responsibilities, institutional arrangements, monitoring and reporting requirements, emergency response procedures, capacity development and training measures, implementation schedule, cost estimates, and performance indicators (see Annex 20 for standard EMP outline); 30 These are the associated construction facilities and temporary works, e.g. access roads, quarries, sand and other materials collection sites, workers camps, workshops, management offices, construction material storage and laydown areas, landslip prevention and catchment protection sites. 35

42 viii) Involuntary Resettlement (IR) and Indigenous Peoples (IP) Plans: in the case of significant involuntary resettlement and indigenous peoples impacts, a detailed outline of the proposed RAP and IPDP impact mitigation measures, management responsibilities, institutional arrangements, monitoring and reporting requirements, capacity development and training measures, implementation schedule, cost estimates, and performance indicators; ix) Information Disclosure: the delivery of information about the project to the general public, affected communities and other stakeholders, starting early during project development and continuing throughout the life of the project (see Chapter 5 for detailed guidance); x) Consultation and Participation: the carrying out meaningful consultation with affected people and other relevant stakeholders including civil society, and facilitating their informed participation (see Chapter 5 for detailed guidance); xi) Grievance Redress Mechanism Development: the establishment of a systematic process for receiving, evaluating and addressing affected people s project-related concerns, complaints, and grievances (see Chapter 6 for detailed guidance); xii) EMP Implementation: the development of the detailed plan and schedules to implement the management actions set out in the EMP; xiii) Emergency Preparedness and Response Procedures: the development of the detailed plan and schedules to implement the specific emergency preparedness and response procedures in the case of natural disasters or accidents; xiv) Monitoring and Reporting: the development of the detailed plan and schedules to monitor the sub-project EMP implementation and its effectiveness, for delivery of documents and reports on monitoring results, including the development and implementation of a corrective action plan where required, and for the monitoring of overall sub-project compliance with the ESS - OM and ESMF (see Chapter 9 for detailed guidance) The ESS steps at this detailed appraisal stage PT SMI will focus upon sub-project detailed review and monitoring procedures, which will include the following activities: i) Gap Analysis. Conduct a review and validation of the accomplished Information Request Form (see Annex 7 Project Information Request Form) to determine adequacy of information provided by the developer. If information is inadequate, the Environmental and Social Safeguard Unit Manager requests for additional information; ii) Obtain, review and investigate information available in the public domain regarding any incidents, adverse impacts on local communities or the environment or adverse environmental or social performance associated with any proposed project; iii) Conduct site visit by social and environmental specialist and/or consultant. The purpose of the site visit is to verify information provided by the client (see Annex 12 Site Visit Checklist and Record for report format). Prior to the site visit, the member of Risk Management Division, Environmental and Social Safeguard Unit prepares a site visit plan and ensures that the plan covers the following: a. Discussion with the company; b. Visit to the project site including sensitive receptors, if any; c. Interaction with people to be displaced (if applicable); d. Visit to the relocation site (if applicable); and e. Informal interaction with local NGOs and local government administration; iv) Confirm the initial environmental and social categorization assigned to the project at this stage and also review the scoping done during the preliminary review stage; v) For projects classified as Financial Intermediary (FI), review the Developer's SEMS; 36

43 vi) The developer will submit all applicable ESS documents SEMS, EIA & SIA, EMP, RAP, IPDP, Corrective Action Plan, Labor Health and Safety Plan (LHSP), Community Health and Safety Plan (CHSP) for the project along with applicable government consents and permits; vii) Appoint Lender s Engineer or Environmental Specialist/Consultant on behalf of PT SMI, if required. The Lender Engineer/Consultant reviews other developmental plans like EIA, IEE, RAP, IPDP, etc. for the project; viii) Subsequent to the site visit and quality assurance of all information provided by the developer, prepare a Social and Environmental Due Diligence (SEDD) report in the form of memo to the Board of Directors routed through Director RMC with his/her comments and observations for approval of loan. (Outline of SEDD report given in Annex 13); ix) Communicate the terms and conditions & environmental and social covenants to the developer and obtain their consent; x) Confirm that the client/developer has obtained all permits, including environmental, as stipulated by the regulations of the Republic of Indonesia prior to the project execution, and obtain agreement that the client/developer will hand over regular reports to the relevant authorities, and extend the validity period if any of the permits which have expired; and xi) Upon approval, legal documents are signed. The legal documents specifying PT SMI s terms and conditions, including principles and operational policies requirements The Risk Management Division, Environmental and Social Safeguard Unit Manager will prepare the applicable documents based on the result of the assessment at this stage. Documents required/ prepared at this stage: i) Environmental and Social Due Diligence (ESDD) Report (refer to Annex 13); ii) ESS Corrective Action Plan (CAP) and Loan covenants (see Annex 14 example of Covenants Pertaining to Environmental and Social Safeguards for Inclusion in Contractual Agreements); iii) Final Draft Memo to President Director routed through Director Risk Management Division for Project Approval (see Annex 11 for example) The outcome of this stage of a project being evaluated will be either a Rejection Note or an Approval of Mandate along with signing of the agreement The Project Proponent will disclose project ESS documents (final) such as EA reports, Resettlement Action Plans (RAPs), Indigenous Peoples Development Plans (IPDPs), etc., on PT SM s website, sponsor website, client or developer s website, and a public place which is accessible to affected groups, local NGOs and other stakeholders as needed to meet GoI requirements Loan Sanction and Disbursement Stage 166. The PT SMI Division of Finance and Investment (Divisi Pembiayaan dan Investasi) will carry out the following activities: Business procedure i) Loan sanction letter will be sent to the client/developer if the credit committee, and subsequently the PT SMI board of directors, approves the client/investor to borrow for the project. The loan sanction letter contains the necessary loan covenants to ensure compliance with applicable policies and the linkages of the loan disbursement to implementation schedules; and ii) Loan Agreement - After the client/developer agree with the stipulations in the loan sanction letter, a loan agreement is to be drafted, which includes all applicable covenants. ESMF application 37

44 i) Prepare environmental and social covenants - every loan sanction letter is required to be accompanied by a list of mandatory environmental and social covenants (refer Annex 14) in addition to any other covenants emerging from the ESS appraisal of the project. These covenants should be prepared by the Risk Management Division, Environmental and Social Safeguard unit, and forwarded to the Finance and Investment Division for inclusion on the loan sanction letter. ii) Communicate the terms and conditions and environmental and social covenants to the developer and obtain their consent. iii) ESS disclosure requirements - In addition to conveying its agreement to stipulated loan covenants the client/developer must also submit a certificate of readiness and proof of adherence to disclosure requirements. There must be proof that the final ESS documents (EA reports, RAPs, IPDPs etc.) have been published on PT SMI s website, published on the client/ developer s website, and published in a public place which is accessible to affected groups, local NGOs and other stakeholders as needed to meet GoI requirements. iv) Loan signing upon approval of the loan agreement containing specific PT SMI terms and conditions (above), applicable PT SMI principles and operational policy requirements and client/ developer adherence to disclosure requirements. v) Loan disbursement requirements - furthermore, the loan disbursement is to be linked to the disclosure requirement above, and to the land acquisition/resettlement checklist Project Implementation and Monitoring Stage 167. This stage will comprise of regular monitoring and auditing of compliance conditions for the investments and corrective action plan proposed as part of the Environmental and Social Due Diligence (ESDD) report. This stage requires that the developers submit regular reports with regard to compliance of social and environmental covenants of the loan The ESS steps at this post-sanction project operation will focus upon project implementation supervision, review and monitoring procedures, which will include the following activities: i) Regular compliance monitoring (Monitoring and Supervision Indicators and Format given in Annex 27); ii) Monitor compliance with loan covenants; iii) Assess and monitor implementation of Environment and Social Corrective Action Plans (EMP, LARAP and IPDP) and mitigation measures, and check for adherence to ambient standards; monitoring by field visits/ investigations; iv) Obtain, review and investigate information available in the public domain regarding incidents, adverse impacts, local communities or the environment or adverse environmental or social performance associated with the project; v) If on review, EMP shows inadequacies and/or inappropriate reflection in project costs, then update and re-do financial appraisal to strengthen EMP and reassess commercial viability of the project. Obtain board approval for the revisions, if any; vi) Conduct compliance monitoring, and assess effectiveness of the Resettlement Action Plan or Livelihood Restoration Plan or Indigenous Peoples Development Plan, Labor and Community Health and Safety Plans at the defined frequency as per the loan covenants; and vii) Conduct of monitoring to assess the overall sub-project compliance with the ESS OM and ESMF The above will be the responsibility of the Environmental Specialist in the Environmental and Social Safeguard and Business Continuity Management (ESSBCM) Division of PT SMI, in coordination with consultants engaged by ESSBCM for specialized input. ESSBCM will be responsible for the Annual Environmental and Social Performance Report (AESPR) (Annex 30) Reporting: 38

45 i) Report on the compliance of Social and Environmental covenants of financing and implementation of corrective action plan at frequent intervals to be defined in the investment agreement (developer will report quarterly during implementation stage); ii) Report on the implementation of various mitigation plans including EMP, land acquisition and resettlement/indigenous people plans (LARP/IPDP) at defined frequency (developer will report quarterly); iii) Prepare reports on its (ESSBCM) performance on environmental and social safeguards and submit to stakeholders/pt SMI board annually Environmental audit: conduct environmental audits and disclosure to public regularly Documents at this project operation monitoring stage will include the following: i) Annual Environmental Monitoring Report (AEMR) (refer to Annex 28) and Annual Social Safeguard Monitoring Report (ASSMR) (refer to Annex 29) to be submitted by the project to PT SMI; ii) Annual Environmental and Social Performance Report (AESPR) by PT SMI to all Strategic Investors (refer to Annex 30); iii) Quarterly compliance reports by the client or developer Project Completion Stage 173. After completion of the project i.e. at the end of the funds disbursement period, monitoring and evaluation of Social and Environment parameters associated with specific project will continue. It will incorporate the following: i) Continuous Monitoring and evaluation of Environmental/Social Management Plans; ii) Preparation of Implementation Completion Report (ICR) (refer to Annex 31); iii) Reporting of lessons learnt and good practices followed; iv) Conducting environmental audits and disclosure to public regularly; and v) Monitoring ESS performance against Environment Guidelines. 39

46 5. Consultation, Participation and Information Disclosure 5.1 Consultation Principles 174. Consultation is an ongoing process that started from the beginning of a project to give and get information to and from stakeholders of a project, to (i) plan, implement, and monitor steps to avoid negative impacts, or, if it is unavoidable, to minimize, mitigate and compensate for such impacts; (ii) inform the project benefits to stakeholders in accordance with the customs and culture of the community; (iii) provide time-bound, understandable, easily accessible, relevant and adequate information to the community; (iv) conduct all these in an atmosphere free from intimidation or coercion; (v) be inclusive and gender-sensitive and adjusted to the local customs and traditions Public consultation and information disclosure is to be guided by the following general principles: (i) Information Dissemination. Sufficient information should be provided in accessible and culturally appropriate ways. Providing information about benefits and disadvantages of the project at an early stage allows people time to think about the issues, consider implications, and formulate their views. An informed public will understand the trade-offs; be able to contribute meaningfully to project design; and have greater trust with the project proponent. (ii) Information solicitation. Asking and listening to the local community, residents, and interested groups about their views and input yield new insights and site- specific information. Past broken promises or mismanagement may have left a legacy of mistrust. Information solicitation provides public s past experience with authorities and can initiate constructive dialogue. (iii) Integration. Predicting likely direct and indirect impacts, short-and long-term resource use implications, evaluating their significance and risks, and developing appropriate mitigation and monitoring programs require not only the scientific data collected by sampling and modeling, but must be based on stakeholder s input and views. (iv) Coordination. The ability to conduct effective public consultation depends on how individual team members appreciate benefits of consultation, understand their roles, and cooperate with each other. A well-integrated Project Team with well-defined roles and responsibility can facilitate dialogue with the executive agency and gain its commitment to remove any constraints to carry out public consultation throughout the project cycle. (v) Engaging People in Dialogue. Public consultation involves engaging people in dialogue a twoway flow of information and ideas between the project proponent and the stakeholders with the opportunity for the stakeholders to express their views and concerns. Ensuring the opportunity to participate in dialogue during the early preparation stage enables to manage expectations and detect any potential serious conflict and help resolve issues before they lead to conflict, reducing financial losses due to delays. 5.2 Community Consultation Mechanism Consultation Mechanism 176. The project forms a consultation mechanism with local governments to inform and get input from the affected residents or local community in regard of the project. The procedure consultation should include methods to: (i) receive, register and validate consultations and requests for information from the public; (ii) screen and assess the importance of the issue raised and determine how to address it; (iii) provide, track, document and publish responses; and (iv) adjust the management program when appropriate. The consultation mechanism should not hamper access to legal or administrative solution in an area. The affected residents or local community will be given proper information about the mechanism. If affected residents or local community have differences of opinion and disagreements about the project, the project management should well negotiate to resolve differences and 40

47 disagreements through consultation efforts, which could be established and facilitated by the local government Meaningful Consultation 177. The following are the characteristics of a meaningful consultation: i) Continual, with an early start. Meaningful consultation begins early in the project cycle and is carried out on a continual basis throughout the project cycle. Adequately informing the affected persons and host community about the project s potential adverse impacts and proposed mitigation measures may involve an iterative process with various segments of the community. ii) Timely disclosure of relevant and adequate information. This means the affected persons and host community should have access to relevant project information that is understandable and acceptable to them prior to any decision-making that will affect them. To be relevant and adequate, information shared with the project-affected persons and host community need to provide sufficient project context and planning to enable them to participate in a meaningful way in project consultations. iii) No intimidation or coercion. Consultation needs to occur freely and voluntarily where the affected persons and host community can express their views without any external manipulation, interference, or threat of retribution, and must be conducted in an atmosphere of transparency. iv) Gender-inclusive, tailored to needs of the disadvantaged and vulnerable. Ensuring consultation with and participation of women may require hiring female professionals and technical staff to engage female displaced persons. For other excluded vulnerable groups, separate consultations, without the presence of higher ranked social groups, are usually needed for individuals to feel comfortable to provide a full picture of the needs of the poor and vulnerable. v) Incorporation of all relevant views in decision-making. The consultation process needs to hear all shades of support or opposition to the project and its proposed activities from the affected persons. It is also important that, commensurate with the nature of the project and the anticipated severity of its effects, all key stakeholders (leaders, average householders, local and regional institutions) from a cross-section of ethnic, gender, and other social groups are included in the consultation and decision making processes such as project design, mitigation measures, the sharing of development benefits and opportunities, and implementation. The project should ensure that the stakeholders attending the consultation represent the affected people to produce a robust consultation result. 5.3 Indigenous People Consultation and Consent Procedures Definition 178. There is no standard definition of indigenous peoples. Indigenous peoples and local communities can have different terms in various areas. The term of "indigenous peoples" is used generally to refer to different social and cultural groups with below characteristics: (i) Self-identification as a part of different cultural groups and the appointment of this identity by others; (ii) As a part of geographically diverse communities or ancestor territories in the project area and natural resources in the area (iii) Cultural, economic, and social institution, which is traditionally separated from dominant society or culture; (iv) Different languages, often different from the official language of the country or area; and (v) Communities that have historically inhabited certain areas. 41

48 5.3.2 Objective 179. The objective of the Indigenous People (IP) consultation and consent procedures is to design and implement projects in a way that fosters full respect for Indigenous Peoples identity, dignity, human rights, livelihood systems, and cultural uniqueness as defined by the Indigenous Peoples themselves so that they (i) receive culturally appropriate social and economic benefits, (ii) do not suffer adverse impacts as a result of projects, and (iii) can participate actively in projects that affect them Consent of Affected Indigenous Peoples Communities 180. Indigenous peoples and local communities 31 are the social groups with identities that may be different from the dominant groups in societies. Their economic, social and legal status is limited to defending their interests and rights on land, natural resources and culture. They also have the limitations to participate in and get benefit from development. They are vulnerable, especially if their land and resources are used by outsiders and degraded significantly. The language, culture, and natural resources as the main pillar of their livelihood can be threatened and exposed to changes by the outer community Indigenous Peoples may be particularly vulnerable when project activities include: (i) commercial development of the cultural resources and knowledge of Indigenous Peoples; (ii) physical displacement from traditional or customary lands; and (iii) commercial development of natural resources within customary lands under use that that would impact the livelihoods or the cultural, ceremonial, or spiritual uses that define the identity and community of Indigenous Peoples If such activities occur and the projects has adverse impacts on affected communities of Indigenous Peoples, the client and PT SMI ascertain that the consultation process will ensure the Free, Prior, and Informed Consent (FPIC) of the IPs. The consent of affected Indigenous Peoples communities refers to a collective expression by the affected Indigenous Peoples communities, through individuals and/or their recognized representatives, of broad community support for the project activities. Such broad community support may exist even if some individuals or groups object to the project activities FPIC applies to project design, implementation, and expected outcomes related to impacts the communities of Indigenous Peoples. When any of these circumstances apply, the client will engage external experts to assist in the identification of the project risks and impacts. To achieve FPIC, unanimity is not necessarily required. FPIC can also be achieved when individuals or groups within community explicitly disagree; for some cases with have no solution, an intermediary organisations should be involved. The following should be documented: (i) mutually accepted process between the project and Affected Communities; and (ii) agreement evidence between parties as the outcome for the negotiations The client will provide documentation that details the process and outcomes of consultations with Indigenous Peoples and Indigenous Peoples organizations, including (i) the findings of the Social Impact Analysis; (ii) the process of meaningful consultation with the affected Indigenous Peoples communities; (iii) the additional measures, including project design modification, that may be required to address adverse impacts on the Indigenous Peoples and to provide them with culturally appropriate project benefits; (iv) the recommendations for meaningful consultation with and participation by Indigenous Peoples communities during project implementation, monitoring, and evaluation; and (v) the content of any formal agreements reached with Indigenous Peoples communities and/or Indigenous Peoples organizations Meanwhile, the project can open opportunities for the indigenous peoples and local communities to participate and get benefits from the project activities so as to help meet their aspirations for economic and social development. They can also play a role in sustainable development by promoting and managing activities and business as co-development. 31 Local communities refers as the presence of the inhabitants residing on the impacted project in accordance with the AMDAL definition or other related project studies 42

49 5.4 Stakeholder Analysis and Engagement 186. Stakeholder analysis is a tool to identify all parties that have direct and indirect interests in the project and its potential impacts on them. Failure to identify the stakeholders and consult with them could impair transparency in decision-making and which, in turn, could lead to conflicts, delaying the project process. Therefore, it is important to identify the stakeholders, the potential project impacts on them, and also to evaluate their concerns and needs, and their ability to understand and influence the decisionmaking at the project preparation stage Stakeholders can be defined as individuals, communities, non government organisations, private organisations, government agencies, financial community, company workers, suppliers/contractors and others who have an interest or a "stake" in the project and its outcome. Stakeholders may be impacted by, or influence the planning and operations of a project in varying degrees of significance. rally, there are 5 categories of stakeholders: 1) Local communities; 2) Civil society; 3) Government and local government bodies; 4) Private sector bodies; and 5) Other institutions The primary stakeholders are those who are directly affected, whether positively or negatively. Social development specialists will have to generate and share socioeconomic and cultural information in doing the stakeholder analysis. Social analysis techniques and methods could be used in identifying stakeholders, their needs, aspirations, and concerns regarding the project. The type of data and information required to conduct a stakeholder analysis include household level socioeconomic data, information on ethnic mix and interactions, cultural traditions, gender profile in socioeconomic activities, mechanisms for decision-making regarding their environment and experience with similar projects. It is useful to rank the expectations, concerns and needs of different groups of project-affected persons. It is also important to determine how their diverse interests would impact on the project outcome. One basic issue that needs analysis is how different groups and individuals will interact with each other in influencing the project outcome Systematically engaging with affected communities in the identification and management of the impacts that negatively affect them contributes to building trust, credibility and local support and provides the opportunity to highlight the positive aspects of the company s presence. This lowers the risk of anti-company sentiments that could lead to costly litigation or disruption of company operation Consultation with affected communities will be effective if: 1) Start early; 2) Disclose meaningful and accurate information; 3) Use culturally appropriate means to reach them; 4) Provide opportunities for two-way dialogue; 5) Document to keep track of issues raised; and 6) Report back on how their input has been used and considered The other stakeholders are those who are indirectly affected by the operations but may have an interest in what the company does. They can be organizations through which benefits are channeled to primary stakeholders, local, regional and national government, civil society organizations, individuals who live in the vicinity, private sector agencies, and multilateral and bilateral institutions. Although potential project impact on them may be secondary in nature, they also could become primary stakeholders depending on the type of activities, the sectors involved and the institutional capabilities to influence decision-making. Therefore, it is important that social and environmental specialists and project leaders be aware of the indirectly affected stakeholders. Keeping these groups informed and maintaining an open communication channel may lower the risk of negative campaigns that could affect the company s reputation The key external stakeholders involved in implementing this ESMF are including but not limited to the list below: (i) Central and local governments and their various related departments; (ii) External environment and social consultants and agencies carrying out technical studies environment and social assessments, monitoring activities, training programs etc.; and (iii) MFI organisations involved in support of PT SMI in ESMF development, implementation and review. 43

50 193. The roles and responsibilities of the key stakeholders in the implementation of the ESMF are as follows: 194. Local governments in Indonesia The Local Governments will have to play a pivotal role in getting the requirements implemented on the ground and providing feedback/communication on performance. Some of the key activities of the local governments would involve engaging with consultants/agencies for preparing the scope of work related to statutory legal compliance and conformance with environment and social safeguards External agencies carrying out environment and social studies and assessments The primary role of the external consultants and agencies will be to conduct the studies, assessments, training programs etc. as specified in their scope of work issued to them and provide quality outputs within the stipulated time periods in consonance with the requirements as specified in the ESMF MFI Support (such as ADB, World Bank, IFC) for the first five high-risk projects, the MFI s will: (i) Conduct joint appraisal and review together with PT SMI prior to subproject approval. If found to be necessary during project implementation, this joint prior review approach could be extended to additional high-risk projects beyond the first five. As part of regular MFI supervision of project safeguards implementation, for medium and low-risk projects the MFI s will monitor PT SMI s operations through post-review to ensure that the ESMF is consistently adhered to, and promptly initiate any corrective action as required; (ii) Monitoring and providing implementation support to PT SMI in ensuring that the clients / developers fulfill the requirements specified in the ESMF; and (iii) Strengthening capacity of PT SMI through joint-review, joint-supervision, training, etc. Together with PT SMI, strengthening capacity of the clients / developers as needed To building a relationship with the stakeholders and develop a stakeholder engagement plan, there are two steps to follow: 1) Mapping the Stakeholders 198. First identify the direct and indirect stakeholders impacted by the project. Then prioritize the different groups based on the nature and severity of the impacts, and the ability of these groups to influence the business. Engagement should be stronger and more frequent with those groups that are more severely affected, as well as with those that have a greater ability to influence the business. By identifying the stakeholders and the issues that may affect or interest them, the communication material and methods to effectively engage with each of them could be developed accordingly. 2) Developing a Stakeholder Engagement Plan 199. The stakeholder engagement plan should be proactive and to address key environmental and social concerns. At a minimum, even if the project does not have adverse impacts on communities or other stakeholders, it should always implement a procedure to receive communications from the public If it is determined that there are affected communities, there is a need to implement a Grievance Mechanism (see above) and actively engage them in consultation, regularly disclosing clear and meaningful information on both your impacts and potential benefits, and providing communities with opportunities to express their concerns and suggestions Finally, there should be a periodic report to affected stakeholders on the actions being put in place to address the issues identified through the engagement process. Regular communication with the various stakeholder groups is an excellent way to understand how company operations affect them and to get early warnings of potential problems. In all efforts to reach out to stakeholders, it needs to ensure that the relationship has been built early, and not wait until a crisis arises to act, as it will be more difficult without those relationships in place to manage the problem The project will provide relevant information, including information from the project social and environmental management documents in accordance with regulations that apply to the determined 44

51 places. If the affected local residents or communities and other stakeholders do not have the literacy ability, other proper communication methods can be used. The relevant project information disclosed to Affected Communities and other stakeholders will help them understand the risks, impacts and opportunities of the project. The client will provide Affected Communities with access to relevant information on: (i) the purpose, nature, and scale of the project; (ii) the duration of proposed project activities; (iii) any risks to and potential impacts on such communities and relevant mitigation measures; (iv) the envisaged stakeholder engagement process; and (v) the grievance mechanism Disclosure and consultation and participation constitute an integrated process in the preparation and implementation of a project. The clients have to disseminate information to affected persons and other stakeholders, and consult with them in a manner that is commensurate with the anticipated project impacts on the affected communities The clients are required to inform and consult with the affected persons on project options and to provide them with project-related information during the planning and implementation. Disclosing information should precede consultation. Limiting disclosure may damage the project. The benefits of disclosure are as follow: 1) It leads to greater awareness about the project and its objectives; 2) It helps promote local decision-making and the participatory development strategy; 3) To make stakeholders better informed due to the two-way flow of information between the project sponsors and the affected people and communities; and 4) It enhances ownership of the project by the affected persons The client must disclose relevant information in a timely manner, in an accessible place, and in a form and language that the affected persons and other stakeholders can understand. This information can be made available as brochures, leaflets, or booklets in local languages. The goal to have relevant project information to be disclosed and consulted is to ensure that adequate and timely information is provided to project affected people and other stakeholders, and that these groups are given sufficient opportunity to voice their opinions and concerns. For illiterate persons, other suitable communications methods may be used, including pictorial messages and announcements in public places, such as a weekly market. 5.6 Requirements for Public Consultation and Information Disclosure Public Consultation 206. Public consultation is mandatory as part of the preparation process for PT SMI Category A and B projects 32. PT SMI will require the public consultation for at an early stage of the planning process. The adequacy of the public consultation and information disclosure is one of the criteria used to determine the project s compliance with the safeguard policies For Category A Projects, the public consultation needs to be carried out during the early stage of preparation and throughout the project implementation to address any issues that affect the local communities, NGOs, governments, and other interested parties. For all Category A projects, the public consultation has to be done at least twice: once during the early stages of the field work and once when the draft planning report is available, and prior to project appraisal For Category B Projects, it is recommended that public consultation be carried out during the early stages of the preparation process and throughout the project implementation to address any issues that affect the local communities, NGOs, governments, and other interested parties For Category C Projects the public consultation is not required, however, consultation requirements may be set on a case-by-case basis, depending on the nature of the project and the relevant environmental and social issues, and interest level of the public For Category FI Projects, the loans and equity investment require the financial intermediary have an ESMS for its operation, and adequate public consultation procedures are to be incorporated into the 32 Table 4-5: Environmental, Social and Indigenous Peoples Screening Categories of Projects, PT SMI ESS OM document 45

52 ESMS. Where the financial intermediary projects involve credit lines, PT SMI public consultation requirements for project will apply. That is, the assessment and review framework for project must have procedures for public consultation Information Disclosure 211. The requirements for information disclosure are as follows: 212. For Category A Projects, to facilitate the required consultations with the affected groups and local NGOs, the information about the project s environmental and social issues as well as technical data needs to be transferred into a form and language(s) accessible to those being consulted. The ESIA is made available to the public, and placed on the PT SMI and Client websites no later than 120 days prior to the Board considerations. The full EIA is also made available to interested parties upon request For Category B Projects, to facilitate the required consultations with affected groups and local NGOs, the information about the project s environmental and social issues as well as technical data needs to be transferred into a form and language(s) accessible to those being consulted. For projects deemed environmentally sensitive, SIEEs and RP are made available to the public, and placed on the PT SMI and Client websites no later than 120 days prior to the Board considerations. For other category B projects, the environmental analysis and LARP are posted on the PT SMI and Client websites as part of the RRP. The full IEE reports are also made available to the interested parties upon request Proposed project and exchange views with relevant government institutions and other interested parties to facilitate the dialogue. Information disclosure in the environmental assessment is not required for the category C projects. However, the public can access to the environmental and social safeguards information described in the recommendation to PT SMI Board that is posted on the PT SMI website. 46

53 6. Grievance Redress Mechanism 215. PT SMI requests the client to establish and maintain a grievance redress mechanism (GRM) for each project or FI level that has environmental, involuntary resettlement, and/or Indigenous Peoples impacts. Complains are often about transparency and sufficiency of information on entitlements, adequacy of compensation, service quality at resettlement site, the attitude of resettlement agency staff, and many other issues. Timely redress of grievances is critical to achieving desired results of resettlement and completing a project in a satisfactory manner. The GRM is an arrangement for receiving, evaluating, and facilitating the resolution of affected people s concerns, complaints, and grievances about the borrower s social and environmental performance at the level of the project. An aggrieved person can also seek redress through judicial and administrative remedies available in the country system Good practice incorporates the following principles for establishing and maintaining a project GRM 33 : (i) Proportionality. The scope, timing, and form of a GRM should fit the project s context and needs of a particular project. To scale a GRM to adverse impact on affected persons, the results of project social and environmental impact assessment are used to understand who will be affected and what the impacts on them are likely to be. In large and complex projects with potentially significant impacts, a GRM should be implemented as early as possible in the project preparation phase and maintained in place during construction and operations to the end of the project. To the extent possible, the personnel from the borrower/client investigating complaints and determining the response should be separate from those involving in day-to-day project management. In smaller projects with relatively straightforward issues, the project may consider designating a point of contact, such as a community liaison officer, to whom project-related views and concerns of the affected community can be addressed. (ii) Involvement. The most successful GRMs involve affected communities in their design, through engaging community representatives in identifying the kinds of disputes that could arise, how affected persons want to raise their concerns, the effectiveness of any existing procedures for resolving complaints, the availability of local resources to resolve conflicts, and other factors that may arise. Suggestion boxes, periodic community meetings, and other consultation and feedback methods may also be helpful in formulating a GRM that will work. (iii) Accessibility. A GRM includes procedures to receive, record, document, and respond to grievances within a reasonable amount of time. The procedures should be easy for all the diverse groups of affected persons to understand and be made known to them. These groups may include more vulnerable people such as the poor and women. The GRM design normally considers the many facets involved in making the mechanism accessible by the people of affected communities. These include their access to transportation and roads and their literacy and education levels, as well as their access to such communications facilities as telephones, mail, and the internet. The GRM should honor multiple methods of communication where this is seen as important, including face-to-face meetings, written complaints, telephone conversations, and . (iv) Cultural appropriateness. A good GRM is designed to take into account cultural attributes and traditional mechanisms for raising and resolving issues. If cultural differences exist within an affected community, the mechanism may need to tailor approaches to ensure that individual groups, especially women and Indigenous Peoples, are fully able to raise their concerns. Members of indigenous communities, for example, often do not avail of formal grievance procedures even when they have complaints. This is particularly true when the differential in social power between the indigenous community and project representatives is great or when affected people are not literate. Good practice finds ways to capture this kind of community sentiment by considering such tools as reporting stations where community liaison officers can collect oral complaints and record them in writing. For individuals reluctant to approach the GRM directly, informal 33 ADB Involuntary Resettlement Safeguards A Planning and Implementation Good Practice Sourcebook Draft Working Document, November 2012, P

54 complaints methods such as phone texting are a possible answer. (v) Responsiveness. The grievances received and responses provided should be documented and reported back to the affected communities. A good GRM provides regular updates on its activities to local communities, clearly addresses the expectations of what the mechanism does and does not do, presents the results on how the grievances were resolved, and gathers feedback from affected people to improve its redress system. (vi) Clear Responsibility. A good GRM establishes and maintains the organizational structure with clear authority and responsibilities for community liaison and grievance resolution. Individuals assigned, as access points are most effective if they are trustworthy, trained, knowledgeable, and approachable, regardless of the ethnicity, gender, or religion of a complainant. (vii) Appropriate protection. It is important that the borrower/client is aware of judicial and administrative remedies available in the country for resolution of disputes so that the project's GRM does not inadvertently impede access to the country s mechanisms. The GRM also sets up protections for complainants in order that they so not suffer from retribution. 48

55 7. Organization and Responsibilities 7.1 Organizational Structure and ESS Responsibilities Organizational Structure 193. An outline of the overall organizational structure of PT SMI is provided in Figure 6-1. Figure 6-1: Organizational Structure of PT SMI Source: PT SMI Website Effective 24 th March The staff and divisions within PT SMI within its organizational structure responsible for ESS management and input to the ESMF procedures as detailed in the following section President Director 195. Responsible under the ESMF management procedures to: i) establish policies and risk management of ESMF implementation for all projects funded by the Company s activities; ii) establish the organizational structure including the clear authority and responsibility related to ESMF implementation for all projects funded under the Company's activities; and 49