CFE - Hydropower Rehabilitation Program
Environmental and Social Review Summary
CFE - Hydropower Rehabilitation Program
This Environmental and Social Review Summary (ESRS) is prepared by MIGA staff and disclosed prior to the date on which MIGA’s Board of Directors considers the proposed issuance of a Contract of Guarantee. Its purpose is to enhance the transparency of MIGA’s activities. This document should not be construed as presuming the outcome of the decision by MIGA’s Board of Directors. Board dates are estimates only.
Any documentation that is attached to this ESRS has been prepared by the project sponsor, and authorization has been given for public release. MIGA has reviewed the attached documentation as provided by the applicant, and considers it of adequate quality to be released to the public, but does not endorse the content.
MIGA is seeking to proceed with underwriting guarantee(s) on proposed senior unsecured loan(s) for up to US$350 million (the Loans) from commercial lenders yet-to-be-identified (the Lenders) to Comisión Federal de Electricidad (CFE), Mexico's state-owned power utility. The Loans will be directed to a management and payment trust controlled by CFE, the Clean Energy Trust Fund (CETF), which CFE established in August 2021.
CFE is the state-owned electric utility of Mexico, operating generation, transmission and distribution infrastructure in all areas of Mexico. CFE is the largest integrated electric utility in the Americas, with over US$128 billion in assets and over US$34 billion in annual revenue. CFE provides transmission, distribution and commercialization services to 99% of Mexico’s population and generates approximately 74% of the country’s electricity.
The proceeds of the Loans will be used to rehabilitate and modernize seven existing hydropower plants (HPPs) (the Project collectively, subprojects individually) owned and operated by CFE (the Project Enterprise) over the period of 4 years. Each intervention will last 1 to 3 months from start of construction to final commissioning. The seven CFE HPPs are Humaya, Infiernillo, Mazatepec, Malpaso, Peñitas, La Villita, and Zimapán, and are located in different districts in Mexico. These plant upgrades will increase hydroelectric energy generation capacity by 113 MW overall, producing approximately 1,426 GWh of additional electricity per year, as well as extend the assets’ useful life by several decades. The Project is aimed at rehabilitating, modernizing and repowering HPPs which were built in the 1960s and 1970s, and it is anticipated that these works will have limited environmental and social (E&S) impacts. The modernization will include, depending on the site, replacement of turbines, generators, transformers and auxiliary systems. More specifically, the works will include design, manufacture and installation of the Hydraulic Turbine, and/or the Electric Generator, and/or the Power Transformers, materials supply, disassembly/assembly, transport/handling. The works will occur within the powerhouse of each Plant, and no works will be done on the structure of the dam wall or reservoir/reservoir water level. At the time of the drafting of this ESRS, the equipment procurement phase for each subproject has been completed or is about to be completed.
This ESRS describes CFE’s corporate-level Environmental and Social Management System (ESMS), assesses the E&S impacts of the subprojects, and CFE’s general E&S risks and impacts assessment and management practices. All subprojects will undergo similar works in similar settings, and all subprojects are considered similar in terms of scope and E&S impacts for this ESRS.
The Project (comprised of 7 existing HPPs or subprojects) is categorized as Category B according to MIGA’s Policy on Environmental and Social Sustainability (2013). The subprojects will have limited, site-specific adverse E&S risks, and/or impacts that can be readily addressed through mitigation measures and management plans.
Key E&S risks are related to minor construction works for the replacement of the turbines, generators and other electric components at the various sites: occupational health and safety risks and dam safety; contractor management and labor issues; air, noise, soil, and water pollution; solid and hazardous waste generation; and transport management of the turbines themselves. E&S impacts will be managed through the implementation of the CFE ESMS and site specific Environmental and Social Management Plans (ESMPs). Operational risks are related to occupational health and safety risks; contractor management and labor issues, and overall dam safety. Contextual risks are related to broader security risks in the regions of Mexico that the subprojects are located in and will be addressed in the updated subproject-level security management plans.
While all Performance Standards are applicable to this investment, based on our current information, the investment will have impacts which must be managed in a manner consistent with the following Performance Standards:
PS1: Assessment and Management of Environmental and Social Risks and Impacts
PS2: Labor and Working Conditions
PS3: Resource Efficiency and Pollution Prevention
PS4: Community Health, Safety and Security
All interventions for the Project will occur within the existing subprojects’ facilities established in the 1960s and 1970s, and therefore PS 5 Land Acquisition and Resettlement is not applicable. PS6 Biodiversity Conservation and Sustainable Management of Living Natural Resources is also not applicable as potential impacts on biodiversity were not identified. No communities of Indigenous Peoples as defined in PS 7 were identified in the Project area of influence and therefore PS 7 is not triggered. No sites of cultural/historical value were identified during the ESIA process. PS 8 Cultural Heritage does therefore not apply.
In addition to the World Bank Group General Environmental, Health, and Safety (WBG EHS), the IFC Good Practice Note: Environmental, Health, and Safety Approaches for Hydropower Projects (2018) will be considered.
Other relevant guidance includes:
Workers’ Accommodation: processes and standards. A Guidance Note by IFC and EBRD (2009)
Good Practice Handbook: Use of Security Forces: Assessing and Managing Risks and Impacts (2017)
Good Practice Note: Managing Contractors’ Environmental and Social Performance (2017)
The following documents were reviewed by MIGA:
Quality, Environmental, Health and Safety Policy;
Quality, Environment, Health and Safety Management System;
Human Rights Policy;
Environmental and Social Pre-Assessment Reports (ESRs) for each HPP.
In addition to reviewing the above documents, MIGA carried out multiple E&S conference calls and meetings with the Project which included meetings with key E&S staff and management, and regulatory authorities.
MIGA’s due diligence review considered the E&S management planning process and documentation for the Project, and identified gaps (if any) between these and MIGA’s requirements. Where necessary, corrective measures, intended to close these gaps within a reasonable time period, are summarized in the paragraphs that follow and in the Environmental and Social Action Plan (ESAP) attached to this ESRS. Through the implementation of these measures, the Project is expected to be designed and operated in accordance with the Performance Standards.
Key E&S issues associated with the Project business activities are summarized in the paragraphs that follow.
PS1: Assessment and Management of Environmental and Social Risks and Impacts
Environmental and Social Assessment and Management System: CFE is Mexico’s 100% state-owned electricity utility and is the main electricity provider for the country, playing the main role in the local power market. CFE is a well-established company with comprehensive approaches to identifying and managing E&S risks and impacts. Its practices with regard to Environmental and Social Impact Assessment are undertaken in line with separate procedures for environmental assessment and social assessment, as per the requirements in Mexico. Environmental assessment is a requirement tied to the authorization from the Environmental Authority (SEMARNAT) while social assessment is tied to the permit from the Energy Secretariat (SENER). The guiding environmental permitting legislation is set out in the General Law of Ecology and Environmental Protection (2015) and the Electrical Industry Law (2014).
CFE’s structure includes 10 productive subsidiaries (Empresas Productivas Subsidiarias, EPS), 5 affiliates (Empresas Filiales) and 4 business units (Unidades de Negocio), that collectively serve the generation, transmission, distribution and commercialization of electricity in CFE’s network. In particular, 6 of CFE’s EPS are dedicated to the generation business segment, 5 of which are responsible for the management and operation of the power generation plants (Generation EPS), while the other is engaged in the administration of power purchase agreements with independent electricity generators (Productores Independientes de Energia). Only 3 of the CFE’s Generation EPS are involved in the Project, while the other CFE’s EPS, affiliates and business unites carry out other activities that are not related to the proposed guarantee. Each of the Generation EPS involved in the Project is individually responsible for carrying out the impact assessment process, obtaining environmental authorizations and implementing the conditions of the authorizations issued by SEMARNAT and SENER, and the environmental and social management and monitoring activities associated with its line of business. The process of identifying and assessing E&S risks and impacts starts at the early stage of subproject design and identification, and E&S considerations are integrated throughout the decision-making process. Impact assessment studies are either produced in-house, or by consultants, depending on the risks associated with each subproject. For this Project, per national legislation, an ESIA was not required. Instead, a separate Environmental and Social Pre-Assessment Report (ESR) per subproject was developed.
The divisions within CFE are supported by corporate level functions for complex E&S impacts and management including permitting, impact assessment, and risk management.
Policy: CFE’s commitment to safety, health, environment and quality management is stated in its Quality, Environmental, Health and Safety Policy. The policy provides a framework for overall management for all CFE activities, including activities of its subsidiaries and contractors, and the basis for CFE’s integrated Quality, Environment, Health and Safety Management System (IMS). At CFE, the term ‘environment’ encompasses both environment (e.g., water, air, biodiversity) and social issues (e.g., property ownership, community health, cultural artifacts, noise). The policy is communicated to employees when they are appointed, and through induction and regular training and awareness events. In addition, CFE has a Human Rights Policy in place, with provisions for corporate level, staff, and contractors.
Identification of Risks and Impacts: As per national legislation, CFE presented Environmental and Social Reports (ESRs) for each individual HPP of the Project to SENER and SEMARNAT to assess whether Environmental and Social Impacts Assessments (ESIA) were necessary. Due to the limited impacts of the subprojects, SENER and SEMARNAT did not require CFE to develop site specific ESIAs. Instead, both authorities asked CFE to manage the subproject through its IMS, and to implement all necessary site-specific management plans prior to construction in the form of an Occupational Health and Safety Management Plan and a Communication Management Plan for interaction with the local communities. As part of MIGA’s ESDD, MIGA reviewed the ESRs developed by CFE. The reports provide a succinct description of the works and a brief assessment of the potential E&S impacts of each subproject together with suggested mitigation measures, set out in the respective permits from SEMARNAT and SENER. The reports were further updated to respond to the questions raised by MIGA during due diligence.
As indicated above, key E&S risks are related to minor construction works for the replacement of the turbines, generators and other electric components at the various sites: occupational health and safety risks and dam safety; contractor management and labor issues; air, noise, soil, and water pollution; solid and hazardous waste generation; and transport management of turbines. These E&S risks and impacts, amongst others, will be managed through the implementation of the CFE IMS and site-specific Environmental and Social Management Plans (ESMPs). The Project will not require additional land acquisition, resettlement, and the Project is not anticipated to impact critical natural habitat or of indigenous people since all interventions will occur within the existing subprojects’ facilities established in the 1960s and 1970s.
Due to the nature of the works, the current conditions and baseline of the river and river basins will not be altered as a consequence of the subprojects, hence no cumulative impacts will be generated for either the environment or the communities upstream or downstream of the HPPs.
Once the equipment replacement and construction works are complete, CFE will continue to apply its existing operations-related E&S procedures and practices reflected/included/supporting in its IMS.
Management Programs: CFE has a corporate-wide IMS in place, incorporating quality, environment, health and safety matters, and certified to ISO 9001 (quality management), 14001 (environmental management) and OHSAS 18001 (occupational health and safety management). Each division has management systems based on the corporate system, and the environmental and social components are further articulated in various procedures. The procedures provide detailed instructions and manuals for each topic and include inter alia: impact assessment and permitting; waste management; emissions control; water management; biodiversity; workers’ health and safety; electric and magnetic fields; managing contractors; monitoring and reporting. The management programs are in line with the Mexican standards for Environmental Management Systems (NMX-SAA-14001-IMNC-2004) and Safety & Health at Work (NMX-SAST-001-IMNC-2008). The requirements of the standards are in line with PS1, and include a number of items such as Health, Safety & Environment policies, hazard identification and risk assessment, health and safety standards, environmental mitigation measures, etc. that must be included in the management systems.
Subproject specific management plans are developed as part of the conditions of the authorizations from SEMARNAT and SENER and CFE IMS. CFE also includes E&S performance conditions in legal agreements with contractors, encompassing the requirements of Mexican regulation and CFE’s policies. CFE has committed to submit to MIGA all E&S construction related plans and mitigation measures within 30 days of contract signing (ESAP Item). Furthermore, CFE has committed to establishing internal and external compliance monitoring and reporting procedures during the construction/equipment replacement and operations phases at the subproject level that are consistent with PS1 (ESAP Item). Once the equipment replacement and construction works are complete, CFE will continue to apply its existing operations-related E&S procedures and practices reflected in its IMS. At construction completion, CFE will also submit a Post Completion E&S Audit at each sub-project (ESAP Item).
Organizational Capacity and Competency: The E&S management capacity of CFE has an overarching corporate structure that provides overall directions and instructions to the E&S departments of each division that will be then individually responsible for the management of projects specific environmental and social risks and impacts. The E&S staff are regionally organized under each division, with E&S officers in the local offices (‘CFE residencias’), and corporate level support departments, separately for E&S management. E&S staff in regional offices/field consists of biologists, forestry specialists, social/communication officers, land acquisition specialists, etc. The E&S organizational structure for subprojects under construction is based on coordination and management from CFE, and implementation by the EPC contractors. For each HPP, CFE has an IMS coordinator and E&S Specialist that works in coordination with the EPC contractor.
CFE’s IMS includes training procedures and content. The training manual entails an on-boarding program adopted to the position and mandatory training on the IMS, development programs for technical staff and specialists, and competency and certification requirements for staff involved in work with specific occupational health and safety risks.
Emergency Preparedness and Response: Emergency Response Procedures (ERPs) are implemented as part of the IMS, and there are specific manuals for emergencies related to environmental, safety and community hazards.
CFE has committed to develop and implement Emergency Response Plans for each subproject, in line with CFE policies, Mexican regulation and consistent with the requirements of PS1, and to submit them to MIGA within 30 days of contract signing (ESAP Item). Risks identified in the ERPs include extreme rainfalls, floods, landslides (with distinction between office and field/site emergencies), roles and responsibilities, description of emergency capacity, training and drill requirements, communication procedures and documentation and reporting of incidents. CFE has committed to undertake a specific dam safety assessment for each of the 7 HPPs prior to construction and no later than 60 days after contract signing (ESAP Item). A dam assessment should be carried out also at works completion (ESAP Item)
Monitoring and Review: Monitoring at CFE consists of corporate level against CFE policies, internal monitoring to verify compliance with regulatory requirements and conditions set out in permits and action plans, reporting by contractors, and external monitoring as mandated by the Civil Protection Agency.
Internal monitoring of environmental, social and safety indicators and issues is conducted by CFE staff at all subproject sites. Subproject officers report to regional CFE staff, who report to CFE central and corporate level. External monitoring is primarily conducted by third party consultants/auditors as mandated by the Civil Protection Agency. Monitoring and review of contractor’s performance is conducted by CFE staff, as per a procedure in the IMS. Annual monitoring reports will also be developed and submitted to MIGA.
Stakeholder Engagement: CFE’s IMS includes the requirement for stakeholder engagement with interested stakeholders. For the subprojects, as also indicated by SENER, CFE has committed to develop a stakeholder engagement and communication plan (SEP) per each HPP to verify the local communities are properly informed of the subprojects, especially in relation to transportation of the equipment. The SEP will include stakeholder mapping and assessment, consultation and engagement strategies, grievance mechanism, roles, and responsibilities (ESAP Item).
External Communication and Grievance Mechanisms: On a corporate level, community members can file grievances directly to CFE through various channels (webpage, email, phone numbers, social media) and through the ‘Línea Ética’, a hotline open to the public to file complaints or comments related to CFE’s operations or staff. The line is overseen by CFE’s Corporate Ethics Committee, which produces annual reports on its activities that are made public through CFE’s website. CFE has reported that there are no current environmental and/or social grievances in relation to the subprojects.
CFE has committed to define project level community grievance mechanisms in the Stakeholder Engagement and Communication Plans and/or Social Management Programs, and include procedures for the receipt, recording, and responding to grievances from the public (ESAP Item).
PS2: Labor and Working Conditions
CFE employs approximately 90,000 employees throughout its divisions and subsidiary companies. Human resources (HR) are managed by each division separately, and overseen by a corporate level Human Resources Committee, including overarching HR policies, evaluation of benefits and remuneration, and compliance with both regulatory and CFE internal policies.
The works will be performed by Specialized Contractors and Equipment Providers, and it is estimated that it will require crews of approximately 30 to 50 workers.
Working Conditions and Management of Worker Relationship: CFE has a corporate-level Human Rights Policy, Code of Conduct and Code of Ethics for staff. The Policy and the Codes are applicable also to contractors, and contracts include provisions regarding labor management. The Code of Conduct includes general rights and responsibilities, institutional values, regulatory requirements, equal opportunities commitment, organization and description of the ethics committee, grievance reporting and management. These policies are in line with the requirements of Mexican regulation and PS2.
CFE’s HR policies stipulate the terms of employment (wages and benefits, hours of work, overtime arrangements and overtime compensation, annual and sick leave, maternity and paternity leave, vacation and holiday, health insurance and end of service benefits) and provisions on restrictions to child labor and prevention of forced labor. CFE’s commitment to non-discrimination and equal opportunities for employees and contractors is also defined. The procedures and Code of Conduct are shared with all new hires as part of induction training. CFE communicates a commitment to non-discrimination based on the age, gender, sexual orientation, health, race, nationality, political opinions or religious beliefs of its counterparties. Provisions for equality and equal opportunities are included in both the code of ethics and code of conduct, and are applicable to both CFE staff and contractors.
CFE’s policies include the workers’ right to freedom of association and collective bargaining. The union for CFE employees is the Union for Electrical Workers in Mexico (SUTERM), and approximately 85% of CFE staff are members of the union. All CFE divisions, sub-division and local offices have union representatives, and the union is authorized to represent the workers vis-à-vis CFE. The union also has a grievance mechanism available for CFE staff, administered through the union representatives.
A formal grievance mechanism for employees is available through both the ‘Línea Ética’, as well as through the union representatives. The code of conduct and code of ethics provides instructions for filing grievances. On subproject sites, the near miss reporting systems also acts as a grievance redress management, primarily for grievances related to safety and security.
Occupational Health and Safety: CFE has an occupational health and safety management system as part of the IMS in place, certified to OHSAS 18001 and in line with Mexican regulation and the requirements of PS2. There is a manual and procedures applicable to different parts of the organization, including risk assessment and mitigation, roles and responsibilities, monitoring and reporting, near miss systems in subproject sites, and training of staff. OHS requirements are applicable to contractors and enforced through contract conditions and obligations. CFE’s goal for occupational health and safety is zero harm and accidents. Management is ultimately accountable for health and safety, and each individual employee is responsible for managing their own personal health and safety.
CFE is committed to applying its OHS practices to the seven subproject sites and operations. This will include for example, an OHS manual covering turbine and large equipment transport and replacement and for induction, training, risk matrix, near miss reporting, incidents follow up, and reporting to CFE (ESAP Item). Lead contractors are required to submit the manual to CFE, in line with OHSAS 18001, and each contractor must have an OHS coordinator on site. A health and safety induction is held for all employees, contractors and visitors to a site. All staff and visitors are provided and obliged to wear appropriate Personal Protective Equipment (PPE), and contractors are contractually obligated to provide their staff with appropriate PPE. First aid kits and fire extinguishers are to be available at all sites. As part of its risk management, CFE has committed to develop and implement a pandemic management plan (ESAP item).
In addition, the OHS manual and risk matrix must be submitted to the Governmental Civil Protection Agency (Proteccion Civil), and subprojects must report to the agency monthly during construction phase. For construction sites, the agency requires subprojects to engage a third-party monitoring consultant/auditor, which conducts site visits as well as provides reports. These reports will be incorporated into the quarterly monitoring reports to MIGA during the construction phase.
Workers Engaged by Third Parties: CFE extends its management systems requirements related to quality, environment and health & safety to its contractors and suppliers. Third parties are obliged to meet Mexican regulatory requirements, which include an appropriate IMS for the subprojects and access to grievance mechanism for contractor staff. This Project will also be required to meet the requirements for third party workers as outlined in PS 21.
PS3: Resource Efficiency and Pollution Prevention
Resource Efficiency: CFE has several initiatives and manuals related to energy efficiency, primarily aimed at reducing the customer’s energy consumption. However, the main purpose of these subprojects is to increase CFE’s resource and energy efficiency by increasing energy output using the same amount of water. CFE’s IMS also includes specific procedures for reduction of water use, and recycling of material. Redundant equipment will be sold as scrap to licensed third parties for re-use of materials in other products, especially the metal components, or donated for educational purposes or to be displayed as artwork in local communities.
Greenhouse Gases: During the construction phase most of GHG emissions will be associated with transport of the equipment and are not expected to be significant. The subprojects will not affect size and capacity of reservoirs, as well as water consumption; therefore, the subprojects will not generate additional GHG emissions during operations.
Pollution Prevention: The primary pollution issues associated with the subprojects include pollution associated with construction (i.e. erosion and sediment transport, construction waste / spoil, potential leaks or spills of hydrocarbons, air emissions from heavy vehicle and equipment use and noise) and recycling of replaced equipment. For each subproject, CFE has committed to develop specific Waste Management Procedures and Environmental Management and Monitoring Plans to mitigate pollution derived from construction activities (ESAP Item).
PS4: Community Health, Safety and Security
Community Health and Safety: The Project is aimed at rehabilitating, modernizing and repowering hydroelectric power plants that were built in the 1960s and 1970s throughout Mexico. The community health, safety and security risks associated with the subprojects include increased traffic issues during construction related to the transport of the turbines and oversized equipment. CFE is committed to develop specific Transport and Traffic Management Plan for each HPP subproject to verify that the communities are properly informed and minimally affected by the process (ESAP Item). CFE is also committed to develop a specific dam safety assessment for each of the 7 HPP subprojects no later than 30 days after contract signature (ESAP Item).
Security Personnel: Security measures for both offices and subprojects sites are stipulated in the IMS, and include fencing, demarcation, use of security guards, security assessment, etc. in line with risk exposure at each site. In areas where necessary, CFE cooperates with the local police force for security management. To align with the requirements of Performance Standard 4, CFE has committed to revise the security management plans for each subproject to include rules of engagement and codes of conduct for security forces (ESAP item).
The documentation listed below is available electronically as PDF attachments to this ESRS at www.miga.org.
Broad Community Support is not applicable for these subprojects.
MIGA supports its clients (as defined in MIGA Policy on Environmental and Social Sustainability) in addressing environmental and social issues arising from their business activities by requiring them to set up and administer appropriate grievance mechanisms and/or procedures to address complaints from Affected Communities.
In addition, Affected Communities have unrestricted access to the Compliance Advisor/Ombudsman (CAO), the independent accountability mechanism for MIGA. The CAO is mandated to address complaints from people affected by MIGA-guaranteed business activities in a manner that is fair, objective, and constructive, with the goal of improving environmental and social project outcomes and fostering greater public accountability of MIGA.
Independent of MIGA management and reporting directly to the World Bank Group President, the CAO works to resolve complaints using a flexible, problem-solving approach through its dispute resolution arm and oversees project-level audits of MIGA’s environmental and social performance through its compliance arm.
Complaints may relate to any aspect of MIGA-guaranteed business activities that is within the mandate of the CAO. They can be made by any individual, group, community, entity, or other party affected or likely to be affected by the environmental or social impacts of a MIGA-guaranteed business activity. Complaints can be submitted to the CAO in writing to the address below:
International Finance Corporation
2121 Pennsylvania Avenue NW
Washington, DC 20433 USA
Tel: 1 202 458 1973
Fax: 1 202 522 7400