In 2006, the Indorama Corporation acquired the Eleme Petrochemicals Company (IEPL) from the Nigerian National Petroleum Corporation, as part of a government‑led privatisation programme. Indorama is an Indonesian‑based manufacturer of petrochemicals and associated downstream products that operates in 19 countries.

Located just outside Port Harcourt in the Niger Delta, IEPL is a 360 hectare site, with polyethylene and polypropylene production facilities. The site is currently being expanded to include a new urea‑based fertilizer plant. Since acquiring IEPL, Indorama has made significant improvements to many areas of the business, including increasing production. However, some of the greatest strides that have been made are in the environmental and social (E&S) standards at IEPL under Indorama’s ownership. This has included both improving community relations and implementing a number of health and safety management systems.

Nigeria is the largest country in Africa by population, with 158 million people1. Although oil‑rich, the country faces numerous developmental challenges, including high unemployment, particularly amongst youth. While numerous reforms have been undertaken over the past ten years, the Niger Delta region has consistently been the focus of social unrest and environmental degradation. The area accounts for 90% of Nigeria’s oil revenue and the conflict between the local communities, oil companies and the Government has meant that there are significant environmental and social risks for businesses operating in the region.

“It has been a long journey for Indorama over the past eight years,” said Munish Jindal, Director of Finance at IEPL. “While there were many processes in place, we needed to improve environmental and social standards. The support provided by our investors has been important,” he added.

CDC’s investment at a glance CDC, along with co‑investors including IFC, provided financing to support the development of a new fertiliser plant, gas pipeline and jetty at the Eleme Petrochemical site

Investment: US$40 million

Date of commitment: 2013

Country: Nigeria

Sector: Manufacturing

E&S

IndoramaThe Benefits of Stakeholder Engagement and Good Occupational Health and Safety

- Reduced security risk and mitigated potential future costs through innovative approach to community relations

- Increased ability to retain and develop talented employees through robust social and health & safety programmes

- Better access to capital by proactively managing E&S risks

E&S Positive Impact

1 http://www.worldbank.org/en/country/nigeria/overview

When Indorama acquired IEPL, it faced considerable challenges with regards to community relations, which were typical of other companies operating in the Niger Delta. Many companies hired workers from outside the local communities, which did little to address the issue of unemployment in the region. Furthermore, local communities felt they were not benefitting from the vast oil and gas resources within the region, given the level of exports, and with few economic or broader development benefits being delivered in the Delta. With the majority of people dependent on agriculture for their livelihood, the negative environmental effects of the oil and gas industry have contributed to the region’s economic problems.

As a result of these conditions, companies were faced with civil unrest and substantial security risks, which generate significant costs and operational hurdles.

Indorama’s response was not to manage and reduce these risks by simply increasing security, but to also find a way to add real social value to the host communities. It achieved this by implementing the following business practices:

Indorama’s Business Practices

Community-owned model:

The company developed an innovative profit sharing programme that was unique to the region. It assigned 7.5% of the shares of the company to the six local communities, thus providing the residents of the region with an ownership stake in the company. The communities have used the dividends to fund social improvement projects, including the construction of new roads and schools.

Local employment opportunities:

87% of employees at IEPL are Nigerian, including 55% from the local communities. This has been crucial to addressing the poverty affecting the region and the contractors involved in the project have signed memorandums of understanding with the local communities agreeing to recruit locals wherever possible.

Training of local security personnel:

The company hired private security to complement the security provided by the Nigerian military and police, all of whom must be recommended from the chief of their local community. Security personnel are screened and importantly, trained in best practice, including the appropriate use of force and conduct towards workers and community members. Again, this provides local employment opportunities, while ensuring closer relations with the community.

The company signed a memorandum of understanding with the local communities, which provides a detailed description of the community projects the company will carry out. This is crucial in terms of managing expectations (reducing the risk of rent seeking behaviour) and allocating responsibilities and accountabilities between the company and other stakeholders. The initiatives implemented by IEPL include scholarships, community development and health clinics. For example, each year the company awards scholarships to 15 students who are studying engineering in universities in Nigeria. IEPL also hosts social activities such as football tournaments, designed to allow employees to interact with community members. In 2014, the company’s budget for social investment programmes was 123.5 million Nigerian Naira (US$0.75 million).

As part of its ownership structure, IEPL also assigned 2.5% of company shares to employees, which is managed by the employee unions. This scheme not only helps create alignment between employees and the company, but can also help attract, motivate and retain talented employees – one of the principal ways in which a commitment to good staff employment practices improves a company’s financial performance.

Indorama’s approach has resulted in strong working relationships with the local communities, which ultimately means that the company has:

• decreaseditsriskprofileandprotecteditselfagainstfutureliabilitiesassociated with attacks and assaults, as well as operational costs and complexities;

• increaseditsabilitytoattractanddeveloplocaltalent,throughscholarship programmes, employee shares and a safe working environment;

• strengtheneditssociallicencetooperate,bygainingandmaintainingthe trust of local communities;

• establishedastrongerrelationshipwiththeNigerianGovernmentbycreating employment opportunities for Nigerians, which facilitates the ease with which it can do business in future; and

• attractedcapitalfrominvestors.

E&S Integration

Community relations in the Niger Delta

E&S: Indorama

E&S Implementation

Petrochemical plants, along with construction projects, have inherently high health and safety (H&S) risks, with the potential for fires and explosions. To reduce the chance of injuries and accidents, a company needs robust H&S management systems. These help improve productivity and decrease costs associated with accidents and insurance premiums.

IEPL instituted several measures to generate a health and safety culture, including:

• conductingriskassessmentsandhazardidentificationandoperabilitystudies;

• developingproceduremanuals;

• “Toolbox”meetingsbeforeeveryshift,whicharepresentedbyasafetycoordinatorand cover topics related to the tasks to be performed that day;

• weeklyenvironmental,healthandsafety(EHS)meetings;

• anawardincentiveprogramme,whereworkersvotefortheircolleaguesforgoodsafetypractices and behavior;

• EHSinformationboards;

• on-sitefiredepartment;and

• improvedwastemanagementandstoragefacilities.

As a result of these systems, the number of accidents and lost time incidents has steadily decreased, while near misses have increased. The increase in the latter figure signals that the health and safety system is effective, because potential accidents are being identified and prevented in time.

Ultimately, the benefits of implementing health and safety management systems have outweighed the costs for Indorama.

“While it is difficult to establish a direct correlation to the company’s bottom line, there is no doubt that having strong health and safety systems is essential in mitigating potential risks and costs, including injuries or the loss of productivity and business opportunities,” said Munish.

Health and Safety in Construction

We mitigate all our security risks through community engagement. Our security ensures the local communities’ security – both sides benefitMunish Jindal, Director of Finance, IEPL

E&S: Indorama

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E&S

Instituting effective E&S management systems has long‑term benefits, in addition to driving value in operations and productivity in the short term. One of the most important benefits is improving a company’s access to capital.

By proactively managing E&S risks, IEPL has improved its access to capital and ability to expand its operations in a high risk environment. Development finance institutions (DFIs) like CDC have E&S requirements and increasingly companies that can demonstrate proactive management of these issues are able to access DFI lending and investment. For example, the IFC made an initial investment of US$75 million in 2006 and then a follow‑on investment of US$150 million in 2012, along with CDC, for the construction of a new fertiliser plant. Indorama’s strong E&S performance was a contributing factor for these investors.

“Indorama have consistently placed great emphasis on maintaining high E&S standards,” said Jeremy Burke, Investment Director at CDC. “As an investor that backs responsible businesses, we have seen the tangible benefits of the company’s approach to community relations and health and safety.”

Commercial banks (including Equator Principle banks) are seeking similar assurances. Importantly, in the context of Nigeria, the Nigeria Sustainable Banking Principles is looking to extend the application of E&S requirements via domestic banking and lending.

As interest in E&S grows amongst investors, companies that are able to demonstrate the value of sound E&S management, above and beyond compliance, are better positioned to benefit.

Indorama The Benefits of Stakeholder Engagement and Good Occupational Health and Safety

Improving access to capital

CDC is the UK government‑owned development finance institution that uses its own balance sheet to invest in the developing countries of Africa and South Asia. It has net assets of £2.9bn.

CDC’s mission is to support the building of businesses in Africa and South Asia, creating jobs and making a lasting difference to people’s lives in some of the world’s poorest places. Under its strategy, announced in September 2012, CDC provides debt and direct investment to businesses as well as acting as a fund‑of‑funds investor. CDC also now only makes new investment commitments in Africa and South Asia.

Find out more at www.cdcgroup.com

CDC