Environmental and Social Compliance Audit Project Number: 49451-002 August 2016 AZE: Shah Deniz Gas Field Expansion Project (Phase 1) This is an updated version of the Final Report posted in June 2016 available on https://www.adb.org/projects/documents/aze-shah-deniz-stage-2-investment-plan-jun-2016-escar The updated version of the Environmental and Social Compliance Audit Report for Shah Deniz II-Gas Field Expansion Project Azerbaijan, again, prepared by Sustainability Pty Ltd for Asian Development Bank; other financial institutions and banks that are or will be providing financial assistance to Southern Gas Corridor Closed Joint-Stock Company (SGC); and SGC in August 2016. This environmental and social compliance audit is a document of the borrower. The views expressed herein do not necessarily represent those of ADB's Board of Directors, Management, or staff, and may be preliminary in nature. Your attention is directed to the “Terms of Use” section of this website. In preparing any country program or strategy, financing any project, or by making any designation of or reference to a particular territory or geographic area in this document, the Asian Development Bank does not intend to make any judgments as to the legal or other status of any territory or area. LENDERS ENVIRONMENTAL & SOCIAL SAFEGUARDS CONSULTANT ENVIRONMENTAL & SOCIAL AUDIT REPORT SHAH DENIZ II – GAS FIELD EXPANSION PROJECT AZERBAIJAN August 2016 INDEPENDENT ENVIRONMENTAL & SOCIAL CONSULTANT ENVIRONMENTAL & SOCIAL REVIEW AND AUDIT STAGE 2 OF THE SHAH DENIZ PROJECT AZERBAIJAN Prepared for: Asian Development Bank (Lender); Southern Gas Corridor CJSC (Borrower); and Other banks and financial institutions that are or will be providing financial assistance to SGC. Prepared by: Sustainability Pty Ltd Suite 3, 118 Flora Terrace North Beach, Western Australia, 6020 www.sustainability.net.au +61 (0)8 9246 6666 Team Members: John Miragliotta Project Director – Principal Reviewer Amy Sexton Senior Social Specialist TABLE OF CONTENTS ACRONYMS AND ABBREVIATIONS ................................................................ VI EXECUTIVE SUMMARY ................................................................................ VIII ENVIRONMENTAL AND SOCIAL MANAGEMENT / STAKEHOLDER ENGAGEMENT .......... IX RESOURCE EFFICIENCY AND POLLUTION PREVENTION ............................................... X LABOUR AND WORKING CONDITIONS.......................................................................... X COMMUNITY HEALTH, SAFETY AND SECURITY ............................................................. X INVOLUNTARY RESETTLEMENT .................................................................................... XI BIODIVERSITY CONSERVATION AND SUSTAINABLE MANAGEMENT OF LIVING NATURAL RESOURCES ........................................................................................ XI INDIGENOUS PEOPLES ................................................................................................ XI CULTURAL HERITAGE ................................................................................................... XI CONCLUSION ............................................................................................................. XII REPORT ORGANISATION ............................................................................ XIII 1. INTRODUCTION .......................................................................................1 1.1 PROJECT OVERVIEW .............................................................................................1 1.2 SCOPE OF WORK ...................................................................................................2 1.3 LENDER POLICIES.................................................................................................4 1.3.1 Equator Principles and IFC Performance Standards ............................................ 4 1.3.2 IFC EHS Guidelines ....................................................................................... 5 1.3.3 ADB ............................................................................................................ 5 1.4 SOURCES OF INFORMATION .................................................................................5 2. SUMMARY PROJECT DESCRIPTION...........................................................6 2.1 SD2 OVERVIEW AND LOCATION ...........................................................................7 2.2 CURRENT PROJECT STATUS ................................................................................10 3. INSTITUTIONAL AND LEGAL FRAMEWORK ............................................. 12 4. ENVIRONMENT, SOCIAL, HEALTH & SAFETY REVIEW AND AUDIT ........... 15 4.1 2016 ASSESSMENT FINDINGS ............................................................................15 4.1.1 Environment, Health, Safety Management ...................................................... 16 4.1.2 Environmental Performance ......................................................................... 17 4.1.3 Health and Safety Performance..................................................................... 18 4.1.4 Human Resources and Industrial Relations ..................................................... 19 4.1.5 Social Performance and Stakeholder Engagement ............................................ 20 4.1.6 Cultural Heritage ........................................................................................ 22 4.1.7 Land Use, Resettlement and Economic Displacement ....................................... 22 5. COMPLIANCE AGAINST LOCAL LEGISLATION ......................................... 24 6. COMPLIANCE AGAINST IFC PERFORMANCE STANDARDS ....................... 26 6.1 PERFORMANCE STANDARD 1 – ASSESSMENT AND MANAGEMENT OF ENVIRONMENTAL AND SOCIAL RISKS AND IMPACTS ........................................26 6.1.1 Environmental and Social Assessment ............................................................ 26 6.1.2 Management Systems ................................................................................. 32 6.1.3 Management Programs ................................................................................ 33 LESC Report for Shah Deniz Stage 2 Environmental and Social Review and Audit August 2016 Page iii 6.1.4 Organisational Capacity and Competency ....................................................... 34 6.1.5 Emergency Preparedness and Response......................................................... 35 6.1.6 Monitoring and Review ................................................................................ 36 6.2 PERFORMANCE STANDARD 1 – STAKEHOLDER ENGAGEMENT REQUIREMENTS .48 6.2.1 Stakeholder Engagement ............................................................................. 48 6.2.2 External Communications and Grievance Mechanisms ...................................... 51 6.2.3 Ongoing Reporting to Affected Communities ................................................... 52 6.3 PERFORMANCE STANDARD 2 – LABOUR AND WORKING CONDITIONS ..............60 6.3.1 Working Conditions and Management of Worker Relationships .......................... 60 6.3.2 Protecting the Workforce ............................................................................. 62 6.3.3 Occupational Health and Safety .................................................................... 62 6.3.4 Workers Engaged by Third Parties ................................................................. 63 6.3.5 Supply Chain .............................................................................................. 64 6.4 PERFORMANCE STANDARD 3 – RESOURCE EFFICIENCY AND POLLUTION PREVENTION ......................................................................................................72 6.4.1 Resource Efficiency ..................................................................................... 72 6.4.2 Pollution Prevention .................................................................................... 73 6.5 PERFORMANCE STANDARD 4 - COMMUNITY HEALTH, SAFETY, AND SECURITY .86 6.5.1 Community Health, Safety, and Security......................................................... 86 6.5.2 Security Personnel ...................................................................................... 89 6.6 PERFORMANCE STANDARD 5 – LAND ACQUISITION AND INVOLUNTARY RESETTLEMENT ..................................................................................................97 6.6.1 General ..................................................................................................... 97 6.6.2 Displacement ........................................................................................... 103 6.7 PERFORMANCE STANDARD 6 – BIODIVERSITY CONSERVATION AND SUSTAINABLE MANAGEMENT OF LIVING NATURAL RESOURCES .....................118 6.7.1 General ................................................................................................... 118 6.7.2 Protection and Conservation of Biodiversity .................................................. 122 6.8 PERFORMANCE STANDARD 7 – INDIGENOUS PEOPLES ....................................136 6.8.1 Scope of Application .................................................................................. 136 6.9 PERFORMANCE STANDARD 8 – CULTURAL HERITAGE ......................................137 6.9.1 Protection of Cultural Heritage in Project Design and Execution ....................... 137 7. COMPLIANCE AGAINST IFC EHS GENERAL GUIDELINES ....................... 145 8. COMPLIANCE AGAINST THE EQUATOR PRINCIPLES ............................