ANNEX C

INTER-AMERICAN DEVELOPMENT BANK

Regional IMPSA WIND POWER INVESTMENT PROGRAM RG-L1042

ENVIRONMENTAL AND SOCIAL MANAGEMENT REPORT (ESMR)

October 2011

Project team: John Graham, Team Leader (SCF/INF), Carlos Alberto Seplveda-Lozano (SCF/INF/CCO), Augusto Repetto (LEG/NSG), Kentaro Aoyama (SCF/SYN), Brian Blakely (SCF/SYN), Genevieve Beaulac, and Ernesto Monter (VPS/ESG)

I. INTRODUCTION

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Industrias Metalrgicas Pescarmona S.A.I.C. y F. (IMPSA or the Company) is one of the worlds leading renewable energy companies providing comprehensive integrated hydro and wind solutions with a strong focus on Latin America. The Company was founded in 1907, and since then it has been controlled by the Pescarmona family of Mendoza, Argentina. In 1910, IMPSA began manufacturing hydro-mechanical equipment, and since 1942, it has manufactured hydroelectric turbines and generators. Leveraging on expertise acquired in hydro and power generation, in more recent years, the Company has entered the fast-growing wind turbine equipment and wind power generation businesses with the development, construction and operation of wind turbine manufacturing facilities and wind farms. The Companys business is currently segregated by operating divisions: i) IMPSA Hydro; ii) IMPSA Wind and iii) IMPSA Energy. This organizational structure allows IMPSA to benefit from synergies between its manufacturing and services activities, and its development and operation of energy generation projects. The Company has a significant backlog (U$S 3,447 millions) in its Hydro and Wind equipment divisions and also is currently developing an important pipeline of investments in wind farms throughout Latin America which currently includes Brazil, Uruguay, Peru, Argentina and Chile, but may also be expanded to projects in other countries in the region. IMPSAs strategy is to enter in PPAs only with financiallystrong off-takers. The total investment program contemplated by IMPSA over the next 35 years is in approximately of US$1,500 million representing more than 545MW of renewable energy development. To support IMPSAs expansion goals, the IDB is seeking to provide a corporate loan to Wind Power Energia S.A. (WPE), a fully owned subsidiary of IMPSA, of up to US$150 million and a tenor of up to 8 years to support the wind energy investment program of the IMPSA group. The IDBs loan to the Company will be used to finance a portion of IMPSAs equity contributions to its wind projects across the region. The tentative projects to be supported by IDBs corporate loan include small wind farms currently identified in Brazil (including Rio Grande do Norte I, Cear II, Cear III) as well as Uruguay (El Libertador I) with a generation capacity ranging from 65-250 MW. However, as the Company identifies additional regional opportunities, other projects may also be eligible for IDB financing during the course of the investment program. II. PROGRAM DESCRIPTION

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Currently IMPSA is developing an important pipeline of wind projects in Brazil, Argentina, Uruguay, Peru and Chile, which have or will compete in bidding processes or negotiations of power purchase agreements (the Investment Program). The total Investment Program contemplated by IMPSA over the next 3-5 years is in excess of US$ 1,500 million representing in excess of 545 MW of renewable energy. The IDBs loan

would be used to finance a portion of IMPSAs equity contributions to its projects across the region. The tentative projects to be supported by the IDB include Rio Grande do Norte, Cear II and Cear III wind farms in Brazil, and El Libertador I wind farm in Uruguay. With the exception of the wind farm in Uruguay, the wind farms to be supported by the IDB loan are small in size, with an average generation capacity of less than 30 MW. The table below provides information on schedule, cost and generation capacity of the tentative individual projects in the Investment Program.

Table 1 Summary of Investment Program Cear II Commercial Operation expected for July 2012 Cost of approximately US$577.6 million. Total install capacity will be 211.2 MW (140 wind turbines generators) in 8 wind farms: -Lagoa Seca -Vento do Oeste -Araras -Garcas -Buriti -Coqueiros -Cajucoco -Quixaba

Cear III Commercial Operation expected for January 2013 Cost of approximately US$396.0 million. Total install capacity will be 150 MW divided in 5 wind farms of 30 MW each - Vento Formoso - Ventos de Tiangu - Tiangu Norte - Ventos do Morro de Chapu - Ventos de Parazinho

Rio Grande do Norte I Commercial Operation expected for January 2013 Cost of approximately US$312.6 million. Total capacity to be installed will be 120 MW divided in 4 wind farms of 30 MW each El Libertador (Uruguay) Commercial Operation expected for January 2013 Cost of approximately US$163 million. - Total capacity to be installed will be 65 MW in 1 wind farms (44 wind generators of 1.5 MW each)

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The electric generation capacity of the wind farms range from 65 to 250 Mega Watt (MW). With the exception of El Libertador I, each wind farm is composed of smaller and independent group of wind turbines clustered as single purpose entities (SPE) with generation capacities of 15 to 20 MW. In Brazil, the SPEs execute contracts with IMPSA Wind Equipment Division for the construction of the turbines and associated equipment, and with third parties for civil works, and transmission lines. In Uruguay, the SPE will execute Engineering, Procurement and Construction (EPC) contracts with IMPSA Wind Equipment Division for the construction of the turbines and associated equipment, civil works, and transmission lines. Each SPE is responsible for processing their permits, including the environmental and operating licenses for the construction and subsequent operational phase of the wind farm. Environmental Impact Categorization. The proposed operation is a corporate loan where the use of proceeds will be used to finance a portion of IMPSAs equity contributions in defined projects in three wind farms in Brazil and one in Uruguay. As part of its environmental and social due diligence activities, the Bank reviewed the Environmental Impact Assessment (EIA) of the individual projects being proposed to be financed under this operation. Environmental and social impacts are expected to be of short term and affect a relatively small geographical scale. The individual projects are not located in critical natural habitats or critical cultural sites. The set of mitigation measures to avoid/minimize potential impacts of wind farms are well known, such as measures to prevent birds collisions with the turbines, and, if applied diligently by the Company, these measures are effective to limit potential impacts. As such, the Banks due diligence confirmed the Category B environmental impact classification for this operation as per the requirements in the IDBs Environment and Safeguards Compliance Policy (OP-703). While the proposed individual projects could change as a result of IMPSAs business plans, the IDB framework for the processing of the IDB loan calls for the assessment of each individual project by applying an Environmental Procedure which will be used by IMPSA to summarize the information relevant to assess compliance with IDB policies. An independent consultant will be appointed to assist the IDB in the review of the information presented in the Environmental Procedure, request clarification and overall confirm that impacts and risks are adequately managed and mitigated. In addition, the consultant will monitor the environmental and social aspects of the construction and operation of the individual projects. Environmental impact Category A operations will be excluded from this program. III. INSTITUTIONAL AND LEGAL FRAMEWORK

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In Brazil, the assessment of environmental impacts is regulated by Resolution 001/1986 from the National Environmental Council (Conama). The main rules of the environmental licensing process are provided by Conama Resolution 237/1997. The licensing process in Brazil covers three phases: 1) prior licensing; 2) construction licensing and; 3) operational licensing. The Prior License (LP) is given in the preliminary stage of the planning of the undertaking or activity, approving its location and design, proving the environmental feasibility and setting out the basic requirements and

conditions to be met in the next stages of its implementation. The Construction or Installation License (LI) allows construction of the undertaking, in accordance with the approved plans, programs and projects, including measures for environmental control and other limitations. Finally, the Operating License (LO) allows the enterprise or activity to operate, after verification of compliance with the conditions stated in the previous licenses. During the review process for granting the Prior License, public hearings are held and community members are invited to express their views on the environmental and social impacts about the project.

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The licensing process in Brazil may be done by the federal environmental agency, the Brazilian Institute of the Environment and Renewable Natural Resources (IBAMA) or may be carried out by State agencies. IBAMA will conduct the licensing process when a project is either: jointly developed in Brazil and in a neighboring country, in the territorial waters, in continental shelf, exclusive economic zone, indigenous lands or conservation units under federal auspices; for those located or developed in two or more states; for those whose direct environmental impacts exceed the borders of the country or more than one state; for those intended for prospecting, mining, producing, processing, storing or transporting radioactive material or disposing of it at any stage, or making use of nuclear energy in any form; or located on military bases or facilities. The State Agencies will have jurisdiction over projects that are either: located or developed in more than one municipality or within a state protected area; located or developed in forests and other forms of natural vegetation subject to permanent preservation; for those for which environmental impacts exceed the boundaries of one or more municipalities; or for the projects in which the federal government had decided to delegate to the State agency the responsibility through legal instrument or arrangement. In the case of wind farms, the federal authorities usually delegate to the State agencies the licensing process unless the project has international trans-boundary impacts. The municipalities are responsible for the local environmental licensing of businesses and activities. State agencies and municipalities usually work closely together in the case of wind farms project. The majority of the wind farms included in the Investment Program have been licensed by means of a simplified environmental assessment report called RAS (Relatrio Ambiental Simplificado). This report is usually required at the state level and consists of an environmental and social analysis and includes the identification and assessment of environmental and social impacts and the corresponding mitigation and/or compensation measures. Operating licenses are typically issued for two years and can be renewed for a similar period. IV. ENVIRONMENTAL AND SOCIAL ASPECTS

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The Bank applied a two-tier approach for the assessment of the environmental, social, health and safety and labor (ESHSL) aspects of this proposed corporate loan. First, the Bank assessed IMPSAs overall capacity to manage the ESHSL aspects of its operations, in particular, that of its Energy Equipment and Wind Division, specifically WPE, which

is the line of business where the loan is to be directed. A second level of analysis focused on the underlying investments, this is, the wind farms projects in Rio Grande do Norte I, Cear II, Cear III and Libertador I. The assessment included a site visit to the Praias de Paranjur 28 MW wind farm, one of the wind farms composing the Cear I project, and a desk review of the environmental reports. 4.2. IMPSAs capacity to manage ESHSL aspects. IMPSA was founded in 1965 with a focus on metal mechanic works, and since then has been very actively involved in the manufacturing of turbines and related equipment for hydropower projects. Manufacturing experience and its knowledge of the energy sector led to IMPSAs involvement in wind energy. In December 2007, IMPSA signed a 12-year financing package with Brazils Caixa Econmica Federal for the production of wind energy for Eletrobrs starting in 2008. In September 2009, IMPSA inaugurated a wind generator manufacturing plant in the port of Suape, state of Pernambuco, Brazil, with a production capacity of 300 units per year to supply the local, regional and global market. IMPSA is currently developing five wind farms in Brazil with a total installed capacity of 300 MW. IMPSA has a Quality Management System that applies to product design, manufacturing, factory tests, commissioning, start up, operation and after-sales and related services. IMPSA is working on the integration of its Quality System with an Environment Management System, which will be certified ISO 14001:2004. IMPSA also operates with an Occupational Health and Safety Management System OHSAS 18001:2007 certified to manage and prevent labor risks. As of today, IMPSA has supplied equipment for hydro and wind projects with approximately 43,000 MW of installed capacity in more than 30 countries. More information on IMPSA is available at: http://www.impsa.com/ Environmental and Social impacts of wind farms. Wind energy projects are considered climate change mitigation projects as they result on long-term greenhouse gas (GHG) emission reductions. However, wind energy projects can result in adverse environmental or social impacts, which will vary in nature, intensity and duration based on the specific characteristics, location and size of the wind farm and social context, being the most significant avian and bat mortality, noise and land use issues. Depending on the area, the construction of access roads and transmission lines to connect the wind farms to the grid could intensify the adverse impact of these projects. In the particular case of the Cear wind farms in Brazil, there could be an issue of cumulative impacts from several wind farms in the same region. Potential impacts during construction. Potential environmental impacts and risks associated with wind farms during the construction phase are mainly linked with the erection of the wind turbines, the installation of the transmission line, the substation and access roads. Main construction impacts are: (i) habitat disturbance; (ii) soil erosion; (iii) dust generation; (iv) increased heavy traffic; (v) noise; (vi) loss of vegetation and; (vii) occupational health and safety hazards for the workforce. Potential impacts during project operation Once in operation, main impacts and risk associated with wind farms are: (i) birds collision; (ii) bats collisions and barotraumas

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incidents; (iii) loss of vegetation; (iv) accidental discharges of hazardous materials; (v) community health and safety hazards; (vi) noise impacts caused by the wind turbines. 4.7 Based on information available, there is no indication that project areas (for projects in Brazil) encompass habitats that could be considered critical or natural. It is possible that the project area of El Libertador in Uruguay may include some portions of natural habitats within the northern portion of the perimeter of the wind concession (see below). All projects are located in areas that have been highly impacted throughout the years, either from cattle grazing, agriculture, mining or by urbanization and in the case of the Ceara II and III, the projects are located on the ocean shores on sandy dunes, which does not constitute a favorable habitat for birds or that could be used as a stopover route during bird migration. Potential noise impacts caused by the wind turbines during the operation phase to the adjacent communities are not expected to be significant. For all projects, human settlements are located more than the average distance recommended by best industry practices for a wind turbine with an height of 80 m and blades of 40 m i.e. more than 360 m. No Indigenous Peoples live in the identified projects area and there has been no evidence to date of any historic or prehistoric archeological findings. All the projects in Brazil are found in areas where the avian population is relatively low and where there are no known migratory routes, or sensitive areas at close distance. As for the project in Uruguay, the El Libertador, it will comprises 44 wind turbines totaling a capacity of 65 MW, the entire project covers an area of 1.680 ha, and from this a total of 15.22 ha will be permanently affected by the erection of the wind turbines, access roads and substation. The project is found within the northern limit of an Important Bird Area (IBA), the Serranias del Este. The IBA overlap on a tiny portion of 0.3 % of the total wind farm project area. The IBA is home to the Carpinterito Enano (Picumnus nebulosus) and the Nandu (Rhea Americana) a flightless bird similar to ostriches; these two birds are listed as Near Threatened per the IUCN Red List. A birds baseline survey has been conducted within the project area during the migratory period. A total of 52 species were observed in the project area, with the exception of the Nandu, none of the other birds observed belongs to a conservation category that it is of concern. According to the information available, the migratory route is mostly concentrated further way up north of the limit of the project area, within the IBA. The EIA presents a Monitoring procedure and a set of mitigation measures to limit potential birds collisions, these measures corresponds to best industry practices and, upon necessity it is specified that the company will proceed to a technical shut down of the turbines especially during migratory periods. A special attention should be devoted to potential impacts on the Nandu during construction works, if this species turns out to be present in the project area. The nothern part of the wind concession appears to be most sensitive in terms of impacts to the terrestrial habitats. However, there will be no turbines erections, neither access roads nor other infrastructures that will be built in this section. As such, impacts, if any, should be minimal. **The El Libertador project will receive a separated loan from IDB and as such it will be subject to an individual environmental and social due diligence.

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V. RECOMMENDATIONS 5.1 Due to the relatively small generation capacity of the wind farms encompassing the Investment Program and the apparent not sensitive environmental and social context in which they are to be developed, the Bank has defined a framework for the evaluation and management of the environmental, social, health and safety aspects of the individual projects to be supported by the corporate loan. The framework involves an Environmental and Social Procedure (ESP) to be implemented by IMPSA, an independent environmental and social consultant conducting supervision activities and ultimately the Bank overseeing performance of the ESP and supervision activities.

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The framework excludes high risk projects (environmental impact Category A projects) and will help ensure compliance with in country regulations, applicable IDB environmental and social policies, and the World Bank Group Environmental, Health and Safety Guidelines for Wind Energy. The ESP will also cover aspects of development/sitting, construction and operation of the wind farms of the Investment Program and will rely on the Borrower for evaluating each proposed individual wind farm against the ESP for assessing: eligibility of proposed investments, providing key information on environmental and social aspects of each individual project at the eligibility phase (size of projects, location, etc), information on compliance with our policies and promotion of good industry practices, and assessing compliance throughout the life of the IDB loan by the presentation of key information about the investments on an Environmental and Social Compliance Reports (ESCR). The Borrower will provide a series of representations of compliance and if applicable, will implement Corrective Action Plans.

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An independent environmental consultant will be appointed prior to financial closure and will confirm compliance with the ESP, on the eligibility of investments, construction and operation of wind farms. The consultant will conduct a desk review of each eligible proposed project (a simple report to be generated against the ESP) and will conduct a site visit to a representative sample of these projects on a defined schedule, in order to cover the individual projects of the Investment Program in no more than 4 years. The Bank will conduct sporadic environmental and social supervision activities.

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In addition, the Bank will require the Borrower to comply with in-country regulations as it relates to the licenses, permits and authorizations to operate its facilities, its own policies, including its Environmental Management System, and the Health and Safety Management Systems, ensuring that staff and other resources are available to adequately implement the policies and systems.

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The above and other customary requirements, such as the type and frequency of environmental and social information to be provided to the Bank will be reflected in the loan contract.