The world’s leading sustainability consultancy A Sustainable Approach for the Polish Energy...

The world’s leading sustainability consultancy

A Sustainable Approach for the Polish Energy Sector?

A review of the evolving legal, social and environmental risks and

risk management options


Overview

■ Poland’s Challenges & Changing Society Expectations

■ Progressive Companies and the Weight of Sustainability Risks

■ Pivotal Public Opinion: EIA to social license-to-operate

■ Tools for Supporting Effective Stakeholder Engagement


Poland’s Energy Portfolio & Key Challenges■ Energy Challenges:

■ Coal dependency & GHG: 92% dependent on coal, sometimes with a resultant complex relationship with the EU cap-and-trade system / 2050 reduction targets (COP19 in Nov should be interesting!).

■ Energy Security: consumption of 15bnm3 of gas, mainly from abroad

■ Renewable energy directive: 8% in 2010 to 15.5% by 2020

■ Renewable Power: ■ Current CAPEX commitment of over USD3.1bn of which 35% is in

renewables (Source: EIC)

■ 120 existing wind projects with 500-600 projects planned

■ Wind fastest growth, but also biomass co-firing and hydro significant.

■ Challenges: financing complex, grid issues

■ Shale Gas:■ 250 permits issued at the end of 2012 (2000-2006 only 14)

■ 42 exploratory wells / 11 fracks to-date approx.

■ Challenges: diminished reserve estimated: 5.3tnm3 to 350-700bnm3 / new regulations and criticism on rights of the public voice

Wind projects

Shale gas concessions


Society’s changing expectations

Internationally, corporations are under high public scrutiny in all aspects of their business operations;

■Core values and ethics

■Engagement

■Responsive to concerns

■Accountable

■Transparent

■Profits essential but with benefit – no cost to society

■Responsibility – not just for employees, but also society, particularly local communities

…Poland is no exception.


“We need to satisfy the common man.”

Mike Yeager, CEO, BHP Billiton Petroleum

“Trust is fundamental for creating and protecting shareholder value.”

Helge Lund, President and CEO, Statoil

“Our business will not be sustainable if we are not responsible operators, accepted by all stakeholders including civil society.”

Yves Louis Darricarrere, President E&P, Total

“Let’s be honest, as an industry we have not always done our best to engage in the public debates about these issues.”

Peter Voser, CEO, Royal Dutch Shell

CEOs across the industry have now got the message that things must change, to maximize their value:

Corporations are starting to react


Key Sustainability Risks to Project Delivery

Study of 83 Projects

50 cases (60%) experienced 1 or more “sustainability events”

Delay in planning phase10

Delays in construction 5

Disruptions in production17

Project expropriation 12

Added costs (eg: litigation)24

IFC, Comm Dev et al 2010Preventable NPV erosion due to:

•Delayed cash flows•Cost overruns•Lost deal opportunities•Cost of remediation•Management distraction•etc…

Life cycle stage Typical risks


How Environmental and Social Risks Impact Project Value?

Concept

…and value seeking studies optimise design

Delays in obtaining permits and/or social accep-tance can erode substantial value

Events (e.g. weather, protests) can disrupt production eroding value

Changing regulations can increase the costs of rehabilitation

Feasibility Execution OperationClosure &

Maintenance

Economic model estimates are refined…

Option 1

Option 2

Option 3

Option 4

Project options are analysed. Tendency to opt for options producing the highest NPV

Pre-Feasibility

NP

V

Project value established based on high level benchmarks

Companies assume the best case scenario when it comes to environmental and social challenges Theoretical

NPV

NPV including risks

Projects face a number of key decisions

•Which water source should we use?•What is the optimal infrastructure location?•Where should we place waste facilities?


Selecting the Preferred Option

Concept Feasibility Execution OperationClosure &

MaintenancePre-Feasibility

NPV including risks

Project teams may consider more ‘sustainable’ options, but NPV dominates decision making

Selecting an option with lower NPV but less risk can prevent delays, protecting value

Designing projects with potential disruption events in mind can minimise impact

More ‘sustainable’ designs can reduce closure liabilities

Option 1

Option 2

Option 3

Option 4

Theoretical NPV

NP

V


We see progressive companies creating an integrated sustainability performance culture:

•Elevate sustainability risk management earlier in the project lifecycle

•Move beyond “politically correct” senior messaging on sustainability to leadership that is “felt” by the front line

•Realign expectations on asset leaders to enable them to protect full life-cycle interests

•Enable stakeholder engagement and communication “at point zero” through increasingly strategic approach, to achieve social licence-to-operate

What Progressive Companies are Doing


Public Opinion Pivotal to Project Success

Impacts become a source of business risk when projects fail to meet stakeholder expectations.

Business risk

Socio-economic impactsSocio-economic impacts

Environmental impactsEnvironmental impacts

Water scarcity Water pollution Air pollution Noise impacts Visual impacts Biodiversity loss

Physical displacement Economic displacement Loss of cultural heritage Conflicts within/between

communities Changes to community

structures


EIA Procedure & Typical Shortfalls

Common criticisms:

■Mistrust often felt among stakeholders: insufficiently involved in the process – missed opportunity

■EIA focus on permitting rather than improving project design

■Follow-up programs do not adequately implement EIA recommendations

■Benefits are not adequately dealt with, thereby precluding the attainment of lasting positive outcomes for all parties

■Tendency to focus on direct effects and limited geographic and temporal scope

■Full costs of environmental and human health aspects not accounted for, including public benefits and costs

■Doesn’t articulate good corporate performance elsewhere

Screening

Baseline data collection

Final Project Description- Project Card

Submission of the EIA application with request for

EIA report scope

Scoping

Preparation of EIA Report based on given scope

Further permitting process; public consultation, authority

involvement, comment evaluation, consultantion etc

Final EIA Report Submittal

Environmental Decision

*simplified & indicative only – in reality the approach may vary


Gaining Improved Acceptance

NATIONAL REQUIREMENTS

- - EIA

- - other permitting

NATIONAL REQUIREMENTS

- - EIA

- - other permitting

INTERNATIONAL REQUIREMENTS

- - Regional SEA

- - IFC standards ESHIA

INTERNATIONAL REQUIREMENTS

- - Regional SEA

- - IFC standards ESHIA

CORPORATESUSTAINABILITY IMPACT

- Entire project-cycle approach

- Stakeholder integration and involvement in design and decision-making

CORPORATESUSTAINABILITY IMPACT

- Entire project-cycle approach

- Stakeholder integration and involvement in design and decision-making

ACCEPTANCE ACCEPTANCE


How to Communicate

One-way information flowSurvey, presentation

Information exchangeDiscussions, workshops

ConsultationViews are taken into accountDecisions taken by company

ParticipationShared decision

making

Tim

eR

esou

rces

Requirement of national and international organisations

• Stakeholder management not an option but condition of good business

• Participation/Involvement not just consultation – requires resources

• Education/capacity building in participation process

• Sensitive balance between technical accuracy and being understandable

• No PR/spin – address issues and misperceptions with clarity, on the ground, project-specific.

• Change behaviours not messages

• Always an unique approach - locally specific and creative


Holistic Approach to Stakeholders

ProjectProjectDevelopers

OwnersJVs

PolicyPolicyMakersMakers NGOsNGOsAuthoritiesAuthorities

Affected PopulationAffected Population


Some Tools

Engagement

■Stakeholder Mapping & Strategic Engagement Planning

■Early-stage Engagement

■Education & Capacity Building Planning

Social Value Creation

■Community Needs Assessments & Investment Planning

■Shared Value Assessment

Integral Consideration

■Sustainability Impact Assessment an early stage project design

■How the company behaves in general…

The world’s leading sustainability consultancy A Sustainable Approach for the Polish Energy...

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