Corporate responsibility

a successful business
needs to be a
responsible business

Business impact

Our aim is to ensure that International Power is known throughout the world as a responsible, efficient and successful company. Our stakeholders - our employees, shareholders, customers, suppliers, regulators and host communities - expect nothing less of us.

Electricity is a unique product that has the power to enhance the quality of life for people throughout the world. Companies involved in the provision of this commodity must also demonstrate responsible and ethical working practices. For a global wholesale generating company like International Power, this equates to following fair and ethical principles to govern the way we manage and conduct our business. It means working in a smart and integrated way - by ensuring our key competencies, technical expertise and best practices are properly implemented over a widely dispersed and diverse range of assets to produce power, water and process heat safely and cleanly. It also means that corporate responsibility (CR) forms an integral part of our business decision process and contributes to our global competitiveness and reputation.

Our CR performance includes our management of the impact of emissions to air and water, other environmental impacts, health and safety, employment and human rights, and community development. A reputation for good CR performance is essential to our business since it influences our relations with governments and regulators, our ability to recruit the best people, and our standing with other stakeholders, including customers and local communities.

The measures necessary to combat global climate change represent one of the biggest potential risks to our business. Government action to meet the Kyoto Protocol and subsequent CO₂ reduction targets will, over time, increase the cost of emitting carbon. These measures will alter the economic balance between different fuels, favouring low carbon and renewable technologies. New business opportunities may be created to exploit renewable energy technologies and potentially also carbon capture and storage technologies. Our aim is to generate energy in an efficient way, to develop low-carbon technology and expand our renewables portfolio.

To track our performance in implementing this strategy we measure the carbon intensity of each unit of electricity generated, across our portfolio. The average carbon intensity of International Power’s global portfolio has fallen consistently over the last three years, in 2007 the average carbon intensity was 0.694 kg/kWh down from 0.715 kg/kWh in 2006 and 0.736 kg/kWh in 2005. We use net reporting for CO₂, which reflects our ownership interest in a power plant. Whilst we measure the carbon intensity of our output, and seek to reduce it, we do not have a specific target for reducing total CO₂ emissions. There are two principal reasons for this. Firstly, we are a growing company and any fossil fuel stations we add to our fleet will add to our aggregate CO₂ emission level. Secondly, we are a demand-led industry. We are obligated to generate electricity to meet the market demand and we are committed to ‘keeping the lights on’. For our carbon footprint to reduce, we require less electricity consumption by our customers. We are, however, committed to running our assets in a responsible manner, complying with all relevant legislation and taking into account our obligations to our shareholders and other stakeholders.

EU member states are committed to meeting existing EU-wide legislation designed to tackle climate change. Under the Kyoto Protocol, the EU is planning an 8% reduction (from 1990 levels) in greenhouse gas emissions by 2012, and is seeking to achieve this through a number of measures. Firstly, the EUETS is a market trading mechanism designed to promote the reduction of CO₂ emissions across European industry. In addition, the EU Renewables Directive sets individual national targets for the amount of energy to be obtained through renewable sources. During 2007, EU member states agreed to new, longer-term binding targets - a 20% reduction in greenhouse gas emissions by 2020 and 20% of renewable energy by 2020. These targets will be apportioned between member states and implemented through new directives.

In December 2007, under a new federal government, Australia ratified the Kyoto Protocol, and is planning to introduce an emissions trading scheme across a range of industrial sectors, including the power industry, by mid 2010. International Power Australia participated in a comprehensive study of such a scheme in the first half of 2007 - drawing on its experience in Europe - and is currently engaged with the new federal government on its design and implementation.

The power generation industry in the US is facing some uncertainty as the government begins to address carbon emissions reduction. As a result there are several state and federal programmes being considered which would establish incentives for low carbon emissions. We expect the federal government to design and implement a more definitive CO₂ emissions policy and trading mechanism over the medium-term.

Significant CR issues

Our senior management team regularly reviews the significant CR issues relevant to our business. These are:

management of health and safety of our employees and contractors;
the consequences of climate change leading to national and international regulation of CO₂ emissions;
measures to control our environmental impacts, especially emissions to air such as SO_x, NO_x and particulates;
maintaining high standards of business ethics;
local community programmes.

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Corporate responsibility governance

Management of CR issues

Corporate responsibility matters relating to International Power’s activities are governed by the senior management team, and in particular the CEO, who has overall responsibility, assisted by the Company Secretary, head of operations and engineering, and the health and safety manager. The CEO gives CR briefings to the Board at every Board meeting, and the Board also receives a summary of Group-wide CR issues in the annual Risk Report.

Day-to-day management of CR is performed by our regional directors, plant managers and employees. Their work is overseen by the HS&E management committee and the human resources group, the latter being responsible for employee matters and compliance with human rights legislation. All employees are expected to play a role in maintaining International Power’s status as a responsible business.

HS&E management committee

The HS&E management committee includes representation from each region and plant. The committee meets quarterly to discuss HS&E issues, and shares best practice across the portfolio to ensure all plants operate to the highest possible safety and environmental standards.

In 2008, we strengthened our CR governance by establishing a new Board-level HS&E Committee to oversee HS&E policy and the performance of the HS&E management committee. It will review HS&E reports as well as any major incidents and issues of public concern. It will meet at least once a year at a power station, where the committee will discuss HS&E issues with the plant manager and relevant on-site staff.

Auditing CR

Our internal audit team reviews all International Power plants and this includes an audit of key corporate responsibility performance. We also work with joint venture partners to try to ensure that joint ventures receive an equally rigorous audit regime. The Audit Committee and CEO receive all audit reports.

All power stations receive a full internal audit every three years, with an interim audit mid-way through the cycle. The internal audit department includes an HS&E specialist, and technical support is externally sourced where necessary.

Third party auditors assess our plants against ISO14001 (environmental) and OHSAS18001 (safety) certification criteria. In 2007, DuPont Safety Resources (DuPont) completed an external review of our health and safety procedures. Details are provided in Progress in 2007.

Standards

All International Power plants, where we have operational control, have ISO14001 and OHSAS18001 certification, except Tihama where construction was completed in 2007. We expect Tihama to reach these standards in 2008. At plants in which International Power is not the majority shareholder, we seek to agree with venture partners that we will jointly obtain these standards.

Our performance in the Business in the Community (BITC) CR Index improved between 2004 and 2005. In 2006, BITC changed its methodology from a numerical ranking to a bronze, silver, gold or platinum award. For 2006 we were awarded a gold overall, with a platinum in the Environment Index and a silver in the Community Index.

In addition to our BITC ratings, we are a member of the FTSE4GOOD index, which identifies companies that meet globally recognised corporate responsibility standards. The selection criteria for this index include environmental sustainability, stakeholder relationships and upholding and supporting universal human rights.

Human rights and Code of Business Conduct

We endorse the United Nations Declaration on Human Rights. This is supported by our own Code of Business Conduct and human resources policies. We apply human rights principles rigorously for our own employees, and we seek to influence our partners, contractors and suppliers to apply the same standards.

Our Code of Business Conduct, which applies to all International Power employees, includes clauses on complying with our ethical, environment and health and safety policies. It also covers competitive practices, conduct in the community and charitable donations. We distribute copies of the Code to all employees, and make it publicly available on our website. All plant managers are responsible for overseeing implementation of the Code.

CR communication and training

Effective internal communication is essential to ensure internal stakeholders receive accurate information on International Power’s strategic agenda, major initiatives, corporate developments and position on industrial issues.

Being well informed ensures employees feel respected, valued, and become engaged in any Group initiatives. For example our staff, through our regional businesses, are encouraged to submit ideas for our annual Flagship Awards, which are donations for projects of special note in the communities in which we operate, in addition to participating in local community work. More details on our Flagship Awards can be found in Social Investment.

To communicate key issues effectively, a variety of communication channels have been developed. Management briefings and functional forums are good examples of these.

We produce an internal International Power magazine that is distributed globally as hard copy to all International Power sites and offices. The publication contains details on major Group news, industry developments that directly affect the Group, updates on regional progress and features on CR.

In 2008, International Power will also be relaunching its intranet to provide employees with access to a range of material, including information on the Group’s CR aims and achievements.

Information on International Power’s CR is also made available via the Company website.

All Executive Directors of International Power and our subsidiaries receive training in corporate governance and CR. We give all new employees basic HS&E inductions and comprehensive safety training relevant to their work area.

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Progress in 2007

Environment and climate change

As a global power company, we recognise the importance of developing and implementing a low carbon strategy over both the medium and long-term.

It is incumbent on us to operate our business in a manner which is sustainable. This means we need to retain our competitiveness today, but ensure we are taking steps now, so that our business is fit for purpose in the future. In this regard the control and limitation of CO₂ emissions is a critical issue and one which has a high priority within our business.

In January 2007, the Board endorsed several initiatives to reduce our environmental impact and enable International Power to take advantage of commercial opportunities for reducing CO₂ emissions.

Generate electricity efficiently

We use state-of-the-art, proven environmental technology at our newly built plants and, where possible, are upgrading the older ones. For example, at Fujairah F2 in Abu Dhabi (a new-build 2,000 MW, 130 MIGD plant, which we have just started constructing), we are using Alstom GT26B technology which, when taking into account the power it produces and the heat generated for the desalination process, has an efficiency of over 60%. We have dedicated resources within our operations and engineering teams to review technology trends and advances to ensure we are best positioned to participate in the drive towards a lower carbon environment internationally.

We are actively reviewing the thermal efficiency at our power stations and implementing improvement programmes. These range from steam turbine upgrades, to reducing works power, to improving combustion conditions. For example, high efficiency steam turbines are being retro-fitted to Units 1 and 2 at Hazelwood power station in Australia.

Investing in low carbon fossil fuel generation

In 2007, we commenced investing in the development of low carbon initiatives, including carbon capture and storage.

Hazelwood, in Australia, burns brown coal which is low in NO_x and SO_x emissions, but produces higher CO₂ emissions due to its high moisture content. We have secured A$80 million of funding from both the Victorian and federal government to develop a way of drying the brown coal before burning it. The fluidised bed coal drying plant will reduce the moisture content from 60% to 12%, using waste heat from the power plant. As part of this project we are also developing a pilot carbon capture plant that will remove up to 25 tonnes of CO₂ from Hazelwood’s flue gas every day. The project also involves fitting a new highly efficient turbine. The financing documents for this project were signed with the federal and Victorian governments during 2007 and we have now reached agreement with a supplier (Alstom) for the technology required.

We are also researching the potential of tidal power, using turbines to generate electricity from tidal flow. In 2007, we entered into a collaboration to develop tidal turbine technology.

Expanding renewables

Our expansion strategy at present focuses on countries where wind energy operates within favourable regulatory regimes, many of which are in Europe. In 2007 we acquired a further 660 MW of operational wind generation, and 132 MW of capacity which was under construction became operational during the year. Our wind portfolio now has an aggregate capacity of 1,199 MW. We are seeking to further expand our renewables portfolio organically, through working with developers where we bring construction, financing, operational and commercial skills, and by acquisition.

Reducing sulphur dioxide emissions

We are investing significant capital in FGD, a process that is retrofitted to coal fired power stations to remove sulphur from emissions. FGD is already fitted at our coal plant in the Czech Republic and at the Paiton plant in Indonesia, and we are installing it at Pego in Portugal and Rugeley in the UK. Installation of FGD at Rugeley and Pego will enable them to comply with the revised EU LCPD’s restrictions on sulphur dioxide emissions. We have chosen the limestone/gypsum FGD process for Rugeley, in line with all other existing or planned FGD power stations in England. More information about the FGD process can be found in the case study ‘Reducing sulphur emissions’.

Health and safety

We are committed to the best possible health and safety performance. 2007 was the third successive year in which our KPI accident frequency rate was reduced. Very few of the reported accidents were caused by plant equipment or management systems failures. The majority of the accidents involved falling, tripping or incorrect lifting of heavy equipment.

International Power deeply regrets the death of one of our contractors at Paiton in Indonesia. In November 2007, a contract employee drowned after falling from a jetty at night while unloading coal. He was not wearing a life jacket, a mandatory requirement. We carried out a full investigation, and immediately introduced a revised set of recommendations for avoiding similar incidents.

DuPont carried out a review of safety management across International Power in the fourth quarter of 2006 and first quarter of 2007. The assessment was carried out at our London headquarters, Rugeley (UK), Ras Laffan B (Qatar), Pego (Portugal), Paiton (Indonesia) and Hays (Texas). Having reviewed our safety policy, observed practices in the field and conducted employee interviews, DuPont declared that, ‘International Power has a good safety performance, and employees at stations exhibit high safety awareness’. DuPont further acknowledged that within joint ventures and associates, International Power frequently provides operational and safety guidance. DuPont provided feedback to site managers, produced a report of findings and made recommendations for improvement. All recommendations have now been acted upon.

We developed a behavioural safety programme for all employees to reduce the number of incidents, including unsafe behaviours and accidents, resulting in lost time. We encourage staff to identify at-risk behaviour and complacency, and take corrective action before an incident occurs. The programme was operational across the majority of International Power’s plants by the end of 2007.

Social investment

Electricity, fresh water and heating are requirements of modern life - this gives us considerable reach and global impact on people’s lives. We, in turn, accept a reciprocal responsibility to conduct our business with a genuine concern for the world around us, and in particular where our business has a direct effect.

We support the communities in which we operate by acting as a responsible neighbour and employer, and contributing towards the improvement of local amenities such as health and education services. For example, at HUBCO we co-sponsor eye camps where simple eye surgery is provided for individuals who cannot afford treatment and without it would have been blind.

This is just one aspect of the health care programme in the Hub area. The mobile medical services and community health centres serve 25 villages in the vicinity of the power station on a daily basis, treating over 47,000 patients during 2007.

Our commitment to education is evident with all regions supporting local schools through sporting equipment, computer hardware, sponsorship of events and prizes. Staff also give their time freely within their communities offering support for many activities.

We encourage our staff to participate wherever possible and support them fully in their endeavours.

Each year our regional businesses propose projects of special note for corporate Flagship status, of up to £100,000 in value.

In 2007 we went further by selecting two major projects, each requiring funds in the region of £100,000.

The Grace Berglund Centre in Victoria, Australia, is using the award to fund the creation of a new ‘child friendly’ reception area. Originally built as a combined school and adult training centre for people with cerebral palsy or with physical and multiple disabilities, the Centre now provides therapy support, clinics, equipment fittings and assessments. The Award also covers the purchase of specialised transport.
The Hope Centre, based in Jeddah, Saudi Arabia, is a multilingual, multicultural centre for children with special needs, and is unique within the Kingdom, in that it caters for both physical and mental disabilities. This is the first Flagship Award in the Middle East and is being used to fund additional teachers in the essential and specialised skills required for this important work. The Award also covers the purchase of transport and necessary equipment for the Centre.

In addition to our Flagship Awards, in recent years our charitable policy has been refined to support four major charities from our corporate centre. These are Crisis, The Queen Elizabeth Foundation, Sight Savers and Wellchild. Each is supported on a three-year rolling programme with an annual sum of £20,000, allowing us to build a longer-term relationship and at the same time giving the charity the security of funding for a defined timeframe. Further information on our relationship with these charities is available on our website.

The Company also operates a ‘Give As You Earn’ scheme to facilitate personal charity donations by our staff. We also match monies that our employees raise for charity.

In 2007 International Power and its subsidiaries contributed £1,195,985 to charitable causes and other community projects. Companies in which we have a minority shareholding (associates and joint ventures) contributed a further £251,028.

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CR performance indicators

Our CR performance indicators can be found in the following table.

	2007	2006	2005
Total electricity output (GWh)	89,628	80,653	67,581
Environment
CO₂ emissions
Total (’000 tonnes)	65,695	61,206	52,294
Per kWh (kg) equivalent	0.694	0.715	0.736
SO₂ emissions
Total (tonnes)	93,000	87,000	77,000
Per kWh (kg) equivalent	0.00098	0.00101	0.00109
NO_x emissions
Total (tonnes)	73,000	75,000	74,000
Per kWh (kg) equivalent	0.00077	0.00088	0.00104
Particulate emissions
Total (tonnes)	7,000	7,000	6,000
Per kWh (kg) equivalent	0.00007	0.00008	0.00009
Number of reportable environmental incidents (KPI)	13	16	16
Number of environmental prosecutions	1	0	0
Health and safety
Accident rate for employees and contractors (KPI)	0.12	0.16	0.23
Fatalities	1	1	0
Social investment
Community investment from International Power and its subsidiaries	1,195,985	1,050,000	1,173,707
Community investment from companies in which we have a minority shareholding	251,028	346,000	662,132

Note: As an energy company we provide electricity, heat, steam and water to our customers. In order to consider all process outputs and provide a more accurate representation of our total outputs, in 2005 we developed a methodology which has allowed us to calculate our data normalised by kWh equivalent. This methodology is available by request.

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