IWS Smart Farm

MIGA has been requested to provide a guarantee covering the shareholder loan investment from Agricultural Corporation In Water Solution, Inc. (“IWS Korea”) into « In Water Solution Agro » Limited Liability Company (“IWS Agro”, or the “Project Enterprise”, or the “PE”), a limited liability company solely owned by IWS Korea which was incorporated in the Kyrgyz Republic (“KR”) in March 2019 for the purpose of developing a smart agribusiness project on a plot located 10 km North-East of Bishkek, KR.

The Project comprises of construction and operation of a 10-hectare (“ha”) smart farm, consisting of hydroponic greenhouses with an automated system that controls the growing environment for vegetables and flowers, located approximately 10 km northeast of Bishkek, KR (the “Project”). The Project is one of the first projects in KR to introduce an advanced indoor farming technology that enables crop cultivation at scale throughout the cold season. The project currently includes 2 dual-fuel (LPG/ diesel) boiler sets, 1 back up diesel generator, an administrative building and a canteen. It will also include 3 additional boiler sets and an LPG storage tank.

The key Project sponsor is Dohwa Engineering Co., Ltd (“Dohwa”), an engineering and construction firm headquarter in Seoul which holds 45% ownership in IWS Korea. Further information on the proposed MIGA guarantee is available in the Summary of Proposed Guarantee.

The proposed Project site is located in an agricultural district. The closest settlement, Jer-Kazar, has a population of around 2,000 people and is located approximately 200 meters from the site. Apart from the initial phase conducted in Oct 2020 -May 2021 on 1 ha of land, the Project will be carried out in two phases, involving 10 ha of land in total. Phase 1 consists of the construction of a 4-ha smart farm and the production and sale of cucumbers; Phase 2 will involve the construction of an additional 6-ha smart farm and the production and sale of cucumbers as well as an expanded variety of crops, including paprika-tomatoes, strawberries, and roses. Construction of Phase 1 facilities was completed in February 2022 and the first batch of crops was harvested in April 2022. Phase 2 will be developed if performance of Phase 1 is considered satisfactory by the Project sponsors.

The Project is categorized as B according to MIGA’s Policy on Environmental and Social (E&S) Sustainability (2013). Key E&S risks associated with this Project include (i) capacity and systems to manage E&S risks and impacts associated with the development and operations of the smart farm, (ii) labor and working conditions of employees and contracted workers, (iii) water and energy efficiency, (iv) management of solid waste, effluent, and hazardous materials; and (v) stakeholder engagement and community health and safety.

While all Performance Standards are applicable to this investment, based on our current information, the Project will have impacts that 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

In addition, the World Bank Group Environmental, Health, and Safety (WBG EHS) guidelines for Annual Crop Production apply to this Project.

The following documents were reviewed by MIGA:

• Project investment plan and facility layout, September 2021
• Kirgzstan Smart Farm Project, Environmental & Social Gap Analysis Report, Ekostandart Ekspert, April 2022
• Land lease agreements, March 2019 and April 2021

MIGA hired an independent Environmental and Social Consultant (IESC), Ekostandart Ekspert LLC, who undertook a site visit to the proposed Project site in March 2022 to assess the E&S risks and impacts of the Project, conduct stakeholder engagement, and review the Project compliance against MIGA Performance Standards. MIGA’s due diligence included a desktop review of the above documentation and discussions with the Project sponsors.

MIGA’s due diligence review considered the E&S management procedures and documentation being developed, and which will be implemented 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 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 MIGA’s PSs.

Key E&S issues associated with the Project’s business activities are summarized in the paragraphs that follow.

PS1: Assessment and Management of Environmental and Social Risks and Impacts

Identification of Risks and Impacts:

An E&S Impact Assessment (ESIA) has not been undertaken for Phase 1 of the Project as the legislation of Kyrgyz Republic (KR) including the Law on Environmental Protection (1999) and the Environmental Impact Assessment Guideline (2015), does not clearly indicate whether an ESIA is required for this type of project. IWS Agro is in process of obtaining the necessary environmental permits from the Ministry of the Natural Resources, Environment and Technical Supervision of the KR. The Project Enterprise will align with the KR national laws and regulations and obtain the required E&S permits. As part of the Project’s Environmental and Social Management System (ESMS), it will develop a legal register, including all required E&S permits, and an E&S risks and impacts register (as per the ESAP).

The Project is located in a rural area on land which was historically used mostly for agriculture. The Project land is leased from one private individual for 20 years based on a willing lessor-willing lessee contract. Based on available information and the IESC’s review, there is no physical or economic resettlement involved with the development of the Project. The project is not expected to acquire more land. In case of any future land acquisitions the project will inform MIGA and comply with MIGA PS 5 requirements.

No high risks associated with the Project’s primary supply chain in relation to labor or biodiversity issues, as defined in Performance Standard 2 and Performance Standard 6, has been identified.

Management Program and Monitoring:

IWS Agro has put in place measures to avoid or mitigate E&S risks associated with the Project, including phasing out the use of coal for greenhouse heating and applying water efficiency measures such as drip irrigation; however, measures are currently ad hoc and not documented in a formal ESMS.

The Project Enterprise will develop and implement an ESMS in line with PS1 (ESAP item), including (i) an Environmental, Occupational Health and Safety and Social policy defining the objectives and principles guiding the business to achieve sound E&S performance; (ii) a legal register of E&S permits required as per national regulations; (iii) an E&S risks and impacts register (iv) a set of E&S procedures and management plans to identify the potential E&S risks and impacts of the Project and to avoid, minimize and/or control the identified risks and impacts; (v) an organizational structure defining roles and responsibilities to implement the ESMS; (vi) emergency preparedness and response procedures including a fire safety and evacuation plan; and (vii) an E&S monitoring program and reporting procedures consistent with regulatory and MIGA’s requirements.

The overall responsibility for managing E&S issues currently lies with IWS Agro’s CEO. The Project Enterprise will assign an E&S Officer to coordinate the development and implementation of the ESMS, and to oversee the PE’s compliance with national regulations and MIGA’s requirements (ESAP item).

As part of the ESMS, IWS Agro will develop an Environmental and Social Management Plan (ESMP). The ESMP will include procedures and management plans covering key risks and issues such as occupational health and safety (OHS), management of water, waste, wastewater, hazardous materials and pesticides, traffic, and land acquisition.

External Communications and Grievance Mechanism:

IWS Agro conducted several consultations with the administration of the Jer-Kazar village during the inception phase of the Project. Communities met during the IESC’s site visit were familiar with the Project activities and aware of potential employment opportunities. The PE will develop and implement a Stakeholder Engagement Plan and a Community Grievance Mechanism consistent with PS1 requirements to facilitate ongoing engagement and communication with local communities (ESAP item).

PS2: Labor and Working Conditions

During the six-month construction period for Phase 1, the PE had 130 workers, consisting of 10 women and 90 men, including 30 subcontracted workers from Uzbekistan. As of March 2022, IWS Agro employed 100 employees, including 80 temporary workers without written employment contracts and paid on a daily basis. The Project Enterprise indicated that approximately 150 workers will be employed when the Project is fully operational, out of which about 70%~80% are anticipated to be daily workers. The seasonal daily workforce is anticipated to be primarily female, and will be hired for approximately 10 months of the year (2 months for planting and 8 months for harvest) depending on the volume of work required, while other workers will be in charge of the regular operations of the smart farm.  

IWS Agro will appoint a Human Resources (HR) Manager, develop an HR Manual and align its practices with the requirements of PS2 and national labor law (ESAP item). All permanent and temporary employees will be required to sign a formal employment contract including information regarding their rights under national law. The HR Manual will apply to all Project employees and cover, amongst others, terms of employment and working conditions, recruitment, prevention of harmful child labor and forced labor, workers’ rights and responsibilities, disciplinary code, retrenchment, freedom of association and collective bargaining, equal opportunity and non-discrimination, sexual harassment in the workplace, and grievance mechanism. The Project Enterprise will develop a labor grievance mechanism, including specific provisions to raise anonymous complaints and a process to manage complaints related to GBV.

A Gender Risk Assessment will be conducted by an external expert and action plan will be developed to address identified risks through enhancements to the Project’s ESMS and the HR system.

The PE will not provide any workforce accommodation during operations or construction of Phase 2. Most Project workers will come from the nearby communities, and expatriates will make use of available accommodation options in Bishkek. If any workers’ accommodation is provided, IWS Agro will prepare a Worker Accommodation Plan in line with the requirements of the PSs and the IFC/EBRD guidance note on workers’ accommodation.

The PE will continue offering transportation to local staff to commute to the Project site. The IESC’s review indicated that current transportation arrangements consist of two 25-person capacity buses. To accommodate an increase in the number of workers and their transportation needs one additional bus will be added at Phase 2. The PE will develop and implement a transportation management plan consistent with the requirements of the PSs, including adequate provisions to provide a safe transportation environment for women employees and mitigate GBV risks (as per the ESAP).

IWS Agro will develop and implement an OHS Management Plan for the Project consistent with PS2 and the WBG EHS guidelines, including measures to prevent, minimize, and control exposure to hazardous substances. All employees will undergo OHS training at induction and subsequently as relevant to their job activity. The PE will ensure that all Project employees are provided with safe drinking water and trained in and use appropriate management procedures for the storage, handling, and application of fertilizers, pesticides, and other hazardous chemicals. The PE has implemented hygiene and sanitation measures to prevent and manage risks associated with COVID-19, including provision of additional personal protection equipment (PPE) and sanitizers.

The Project Enterprise will include E&S provisions in contracts with sub-contractors covering, as a minimum, compliance with national labor legislation, terms of OHS management, and access to a workers’ grievance mechanism.

PS3: Resource Efficiency and Pollution Prevention

Potential environmental impacts of the Project are expected to relate mainly to stress on water resources, groundwater pollution risks due to wastewater discharge and the use of pesticides and other hazardous substances, and air emissions from the diesel boilers used for greenhouse heating.

Dual-fuel (LPG/ diesel) boilers are currently used to heat the greenhouses. It is planned that starting from August 2022, the Project will use liquified petroleum gas (LPG) as a main source of fuel for the boilers with diesel being used as an emergency backup. The Project will install the LPG tank with a capacity of 5 cubic meters and the fuel will be regularly delivered by truck. The smart farm facilities are connected to the power grid, with backup power provided by a dual-fuel generator. The backup generator runs on diesel and is used 1-5% of the time on average due to power outages. The Project is not expected to produce more than 25,000 tons of CO2-equivalent annually during operations, therefore reporting Greenhouse Gas (GHG) emissions to MIGA is not required. The generators and boilers will be operated and maintained in line with the equipment manufacturer specifications, the WBG EHS Guidelines and the requirements of PS 3.

IWS Agro uses three previously existing groundwater wells located on site to supply water to its facilities. The PE indicated that greenhouse irrigation requires an average of 20 cubic meters (m3) of water per day and per hectare, therefore operating the smart farm is expected to require more than 200 m3 of water per day when Phase 2 is operational. The PE will obtain any water abstraction permit required by national regulations.

The sewage effluent from the administrative building and the canteen are collected in the septic tank and regularly removed by a third-party contractor. The major source of wastewater from the Project is water from the hydroponic system. During the testing Phase 1, approximately 10 – 30% of the water used in the hydroponic system was discharged to the environment without treatment. The effluent typically contains residues of plant nutrients, such as nitrogen and phosphorus. IWS Agro is planning to install a water recycling system, which is expected to allow up to 30% of the hydroponic system effluent to be reused as liquid fertilizer. The PE is planning to build a wastewater treatment unit, which is targeted to be operational by August 2023.  The Project will monitor compliance with national effluent standards and the WBG EHS guidelines. Results will be reported in the Annual E&S monitoring report to be prepared for MIGA. As part of the ESMP, the PE will develop and implement a water and wastewater management plan, including the necessary resource efficiency and mitigation measures to ensure that the Project does not have significant adverse impacts on the quality and availability of groundwater for community use (as per the ESAP).

The Project generates both non-hazardous and hazardous waste, including packaging for pesticides and various chemicals used to prepare the crop nutrient solutions such as sulfuric and nitric acids. The PE segregates plant waste on site, with the objective to compost all crop residues. Waste which is not reused or recycled is disposed at a landfill of a third-party waste management company. As per the ESAP, IWS Agro will develop and implement a waste management plan in line with PS3.

The IESC’s review indicated that IWS Agro does not use pesticides classified as extremely hazardous or highly hazardous according to the World Health Organization’s (WHO) Recommended Classification of Pesticides by Hazard Classes. As a part of the ESMS, the PE will develop a hazardous substances management plan in line with the requirements of MIGA PS3 and the WBG EHS guidelines for Annual Crop Production (as per the ESAP).

PS4: Community Health, Safety and Security

Potential risks and impacts to community health, safety and security from the Project activities, including increased traffic on public roads, groundwater pollution, and community access to hazardous substances such as pesticides, are expected to be readily addressed through control measures that will be included in the ESMP.

No issues related to the influx of labor during construction of Phase 1 were reported during the community consultations undertaken by the IESC. Potential risks related to labor influx during operations and construction of Phase 2 are expected to be limited as the PE indicated that most of the workers will be sourced from the local area.

Site security measures include fencing of the smart farm facilities, video surveillance, and access control by three unarmed guards.

For additional information on the Project, please contact:

Contact name: Ji Hoon Kim

Address: 1/6 Sydykova Street, Dzher Kazar Village, Issyk-Ata District, Chuy Province, Kyrgyz Republic

E-mail: jjtt23@naver.com, iws@inwater.com

Phone: +996 500 007 604 (KG), +82 10 4903 7604 (KR)

Website: http://www.inwaters.com/eng/main

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