Indorama Cotton

completed

        The proposed IFC investment comprises a senior 8-year A Loan of up to US$60 million; to FE “Indorama Agro” LLC (Indorama Agro), an Uzbek indirect subsidiary of Indorama Corporation Pte. Ltd. (Indorama or the Sponsor), a long-term IFC global client. Indorama Group is the world’s largest producer of polyester and the leading producer of polyester feedstock (PX, PTA, and MEG) and man-made fibres. Its manufacturing activities are spread across 136 sites in 37 countries in Asia, Africa, Australia, Europe and Americas with over 42,000 employees and a total manufacturing capacity of almost 24.5 million tons a year.  The investment will help Indorama to introduce to the country modern technologies of cotton production, establish modern cultivation and mechanical harvesting of cotton to provide its local plant, FE “Indorama Kokand Textile” JSC (Indorama Kokand) with a stable supply of non-contaminated (free from  plastics, hairs and other foreign materials that could be collected by hand picking) raw materials (the Project). The proposed investment will fully complement IFC’s ongoing Advisory Services (AS) Project by striving to decrease the risk of forced labor in cotton farming, increase production efficiency of Project farms, and enhance sustainability of the cotton sector in Uzbekistan. IFC’s ongoing monitoring of its active investments in Indorama companies indicates the Group’s environmental and social performance is generally satisfactory. Environmental and Social Review Summaries (“ESRS”) for some of the most recent projects, can be reviewed from the following links: -          Project # 39112: JSC Indorama Kokand Fertilizers and Chemicals: https://disclosures.ifc.org/#/projectDetail/ESRS/39112 -          Project# 36098: Indorama Kokand Textile: https://disclosures.ifc.org/#/projectDetail/ESRS/36098 -          Project # 38096: Indorama Port: https://disclosures.ifc.org/#/projectDetail/ESRS/38096 -          Project # 40420: Eleme Fertilizer II: https://disclosures.ifc.org/#/projectDetail/ESRS/40420 -          Project # 42187: Indorama Eleme Fertilizer and Chemicals Limited: https://disclosures.ifc.org/#/projectDetail/ESRS/42187 In June 2016, the Office of the Compliance Advisor Ombudsman (CAO), the independent accountability mechanism for projects supported by IFC and MIGA received a complaint related to several IFC projects in Uzbekistan, including Indorama Kokand. The complaint was filed by a coalition of non-governmental organizations (NGOs) on behalf of Uzbek human rights monitors and alleged victims of forced labor in the cotton fields and the complaint raised concerns alleging forced labor in Indorama Kokand’s supply chain. The details of these complaints along with the CAO assessment report are available at http://www.cao-ombudsman.org/cases/documents/UzbekistanCAOAssessmentReport_ENG_rev.pdf.  Similarly, In April 2018, CAO, received a complaint from a group of employees of the Indorama Eleme Fertilizer Company Ltd (IEFCL) alleging noncompliance with certain aspects of IFC’s Performance Standards for the Eleme Fertilizer II project. The details of these complaints along with the CAO assessment report are available at:http://www.cao-ombudsman.org/cases/document-links/documents/CAOAssessmentReport_ElemeFertilizerIandII-01_Nigeria_Feb.2019.pdf. The report concluded that only the complaint related to a potential reprisal against the workers merited becoming a subject of a Compliance Audit. Currently, CAO is conducting a Compliance Audit related to this specific aspect which is expected to be complete in June 2020 at the earliest. In parallel, IFC has been monitoring IEFCL’s implementation of the Line II ESAP requirements, which is almost complete. Two key developments include the election of the union executive councils in February 2019, followed by signing of collective bargaining agreements, with agreed increments paid at the end of September 2019, and the enhancement of the workers grievance mechanism, which now also allows for anonymous complaints. IEFCL also routinely conducts grievances assessments to identify trends and prevent issues from scaling up. As part of the ongoing monitoring for the IEFCL project, IFC has confirmed that IEFCL is fulfilling the commitments made in the ESAP to effectively manage EHS and social risks in a manner consistent with the requirements of IFC's PS.   In the context of Indorama Kokand noted above, at the time the complaint was made to CAO, IFC was already aware of the issues cited in the complaints and had been working with the client to address them.  In 2017 IFC Advisory Services (AS) launched a program intended to facilitate the transformation of the cotton and textile sectors in Uzbekistan from its former model which had declining productivity and forced labor to a modern, efficient and high yield private sector-run industry free of forced labor, thereby creating opportunity for private sector investments. This Advisory program contributed the structural reform of cotton farming that enabled Indorama Agro’s cotton farming investment. The Government of Uzbekistan (GoU) has recently launched a program for the creation of cotton farming clusters. In 2018, 13 clusters were established in Uzbekistan (one per region). In 2019, the number increased to 58. In March 2020, 89 clusters were registered to grow cotton. There is no formal definition of the term “cotton cluster”, but it describes a structure whereby the government allocates a defined area to a private investor who in return commits to growing cotton (either by direct farming and/or by contracts with existing/new farmers) and to establishing processing and/or manufacturing facilities for use of cotton within the country.  Indorama Agro was established to respond to this initiative to develop and modernize the cotton farming sector.  Through its participation, Indorama Agro expects to start growing and ginning its own cotton (with rotation crops) for captive consumption at the existing yarn facility in Kokand operated by Indorama Kokand. A project company – FE “Indorama Agro” LLC, Uzbekistan (the “Company” and/or “Indorama Agro”) was established by a subsidiary of the Sponsor to develop and implement the Project. This project serves as a pilot approved by wide ranges of stakeholders for developing a modern sustainable cotton production model with efficient cotton growing, irrigation and harvesting systems based on latest technological and digital solutions, free of forced labor, and for bringing global brands into Uzbekistan. The Project is located in the Qashqadaryo and Sirdaryo regions of Uzbekistan which have a well-developed agricultural sector and extensively irrigated cropping areas. The Project will be carried out within existing land plots previously used for planting cotton with wheat as a rotation crop.  Land was allocated through a government-managed process to minimize the impacts of land acquisition.   The Project involves two cotton farming schemes: direct farming by Indorama Agro and contract farming engaging local farmers, who are pre-financed by Indorama Agro, to grow and deliver cotton to Indorama Agro.  The direct farming comprises about 50,000 hectares (ha) of land in four administrative districts in Qashqadaryo region (Nishon and Kasbi) and Sirdaryo region (Oqoltyn and Sardoba). Contract farming was initiated by Indorama Agro in 2019 to support local (small) farms in Kasbi District and will be later extended to Nishon District in 2020 reaching approximately 1,000 farms covering a total land area of up to 27,000 ha by 2023. Indorama Agro-contracted farms receive financial and other assistance (pre-financing, seeds, fertilizers, defoliant and pesticides), continuous agronomic support and training, and in return will deliver cotton to Indorama at a price no less than the price set by governmental gins and/or stipulated by the government. The Project’s key components are:•          Re-development of cotton land plots, include laser leveling, repairing and reconstruction of irrigation and drainage systems including construction of drainage water collection, water reservoirs and recycling facilities, pumps, utilities etc.;•          Cultivation of the cotton lands, involving planting, cultivating, harvesting;•          Construction of two cotton gins and modernization of an old gin purchased from the government owned cotton enterprise, approximately 150 metric tons per day cotton fiber capacity for each gin to process harvested cotton in each of the two regions;•          Transportation of cotton from cotton fields (direct and contract) to the gin plants and various temporary cotton collection centers;•          Construction of farm depots and machine parks;•          Construction of two residential complexes for expats staff and families working in the two regions; and, Construction of a 5-km transmission line to connect the new ginning facility in Oqoltyn district to the power grid (construction completed