IndustrySouth-East European INDUSTRIAL Мarket - issue 2/2009

Industry, power engineering ang energy efficient projects in South-East Europe supported by European Bank for Reconstruction and Developement (EBRD)

Elektrokrajina Power
Distribution Project,
Bosnia and Herzegovina

The EBRD is considering providing debt financing for the reconstruction of power distribution network and facilities and upgrade of metering system (the "Project") in the Banja Luka region of Republic of Srpska of Bosnia and Herzegovina. The Project will increase energy efficiency by reducing the technical and commercial distribution network losses.
The Project will facilitate enforcement of payment discipline and reduction of commercial losses through remote meter reading, relocation of meters (outside the houses) and remote disconnection. The improvements in the distribution network will also lead to a better quality of power supply (fewer interruptions, better frequency control) necessary to support the country’s economic growth. In addition, extending a corporate loan to a distribution company relying primarily on the regulatory framework demonstrates the financial long-term viability of the sector to commercial lenders and private investors.
The client is ZP Elektrokrajina a.d., the power distribution company servicing the region of Banja luka, majority owned (65%) by Elektroprivreda Republika Srpska ("EPRS"), one of the three national energy utilities that cover electricity generation and distribution in Bosnia and Herzegovina.
EBRD financing is EUR 15 million corporate senior loan to Elektrokrajina to co-finance a EUR 20 million investment together with the Republic of Srpska Investment Development Bank and the Client.
The total project cost is EUR 20 million.

Environmental impact

The Project was screened B/1 under the Bank’s Environmental Policy (2003), requiring an Environmental and Social Due Diligence (ESDD) in line with the Bank’s Environmental Policy. The ESDD undertaken by an international independent consultant consisted of an Environmental Audit of the existing assets and an Environmental Analysis of the proposed investment programme.
The ESSD has confirmed that the company is in general compliance with National requirements and the investment programme is structured to meet the Bank’s Environmental Policy. The ESDD identified, among others, the need to further strengthen the institutional capacity of the Company in terms environmental, health and safety (EHS) management. This has been addressed through the Environmental and Social Action Plan (ESAP), which has been agreed with the Company. The ESAP includes among others the need for a formalized EHS management system in line with best international practice as well as development of a stakeholder engagement programme.
The Bank will monitor the project to asses the status of implementation of the ESAP.

Maritza East 2 TPP - FGD 5-6
Loan Extension

The EBRD is considering financing the installation of a Flue Gas Desulphurisation (FGD) plant at units 5 and 6 of the Maritza East 2 (ME2) power plant in Bulgaria. The power plant is fired by lignite and has a capacity of 1,450 MW. The key objective of the proposed project is to reduce pollutant emissions and therefore to help improve local conditions and assist the country in meeting its national and EU environmental standards and obligations.
The transition impact of the EBRD involvement results from:
The project introduces FGD technology that will lead to compliance with EU environmental standards. The technology and the improved compliance with international standards that it allows are potentially replicable in the region where environmental performance is an issue and where there has been limited investment to control pollutant emissions in thermal generation power plants to-date.
The project will also have significant economic benefits for the country and the region as it provides a relatively low cost alternative to replacement capacity and supports the local lignite mining industry. Due to access to low-cost lignite, ME2 will continue to be a low cost producer, which is particularly important in the context of increasing demand and supply shortages in the region.
The project will support a key market player in the Bulgarian Electricity market to improve its environmental performance to EU standard and become a modern producer of electricity.
The client is Maritza East 2 (ME2), a 1,450 MW, lignite-fired power plant near Stara Zagora in south-east Bulgaria. ME2 is an independent joint stock company. ME2 is a subsidiary of the Bulgarian Energy Holding, 100% owned by the state via the Ministry of Economy and Energy.
The EBRD expects to provide a senior debt facility of up to EUR 55 million to Maritza East 2 TPP. The Bank intends to syndicate approximately EUR 20 million to commercial banks.
The European Commission has provided a EUR 34.5 million grant funding under ISPA towards the cost of the project. Maritza East 2 will fund the remainder of the project cost.
Total project cost is approximately EUR 101 million.

Environmental impact

The project was screened B (2008). The project will require an environmental and social analysis and an environmental health and safety audit of on-going operations of the plant. It should be noted that extensive due diligence was conducted, and an Environmental Management Plan prepared for the original project in 2003. Therefore, the environmental and social appraisal of the current project will need to focus on obtaining an update on the status of mitigation measures identified previously as well as analysing any other key issues within the context of the revised and Environmental Social Policy (2008) and Performance Requirements.
Key issues identified by the original due diligence include: air emissions, water usage and discharges, FGD resources and FGD by-product management and usage. The environmental and social appraisal will need to identify the extent and magnitude of impacts at construction and operation phases of the project taking into account boundaries of the direct influence of the project, and assess how any environmental, social, health or safety issues related to the activities of the sub-contractors, can be mitigated given that the EPC contract has already been issued. Environmental issues include: disposal of waste at construction and operation stages, including hazardous waste, and a potential contamination of groundwater and surface water in case of poor integrity of a landfill and floods overflowing existing ash ponds. Labour-related issues include protection of workers in terms of wages and compensation; availability of a grievance mechanism for addressing concerns by employees of both the Client and sub-contractors; provision of safe systems of work and working environment. Community health and safety issues include a requirement for adequate emergency preparedness. Availability of an adequate stakeholder engagement programme will be reviewed by the due diligence.

Petrom Power Plant

The EBRD is considering providing EUR 200 million corporate senior unsecured loan to the Romanian oil & gas company, Petrom S.A., the largest company in Romania, to fund the construction of a new 860 MW CCGT power plant, which will generate electricity with high availability (91% load factor) and high level of performance (the "Project"). The unit will be built in Brazi, next to an existing refinery of Petrom. The plant is designed according to the highest technical standards and will meet the latest European environmental requirements. This is the first Combined Cycle Gas Turbine of this kind to be installed in Romania and as such will be the most efficient thermal power plant of this size when commissioned.
The transition impact of the Project is derived from:
• The Project is the first 100% private power generation project in Romania, a market where virtually all power generation capacities of this size are state owned;
• The Project will contribute to the stabilization of the Romanian electricity system, by offering system services and participating on the electricity balancing market;
• The Project contributes to the revamping of the electricity sector asset base in Romania, by using modern, state-of-the art Best Available Technique solutions;
* The Project will improve environmental standards and efficiency in the Romanian power generation sector;
• The Project will support the private sector, and therefore pave the way for more private projects to be implemented in the Romanian power generation sector. The project will lead to an increased presence of the private sector in Romanian power generation, which will stimulate competition and improve efficiency.
• The Project shall have significant demonstration effects, having the potential to facilitate other private investment, for example in the replacement of antiquated power generation assets by modern, state of the art and environmentally friendly technologies.
The client: Petrom is the largest company in Romania and has proved oil and gas reserves of 872 mn boe, a maximum refining capacity of 8 million tons per year, approximately 550 petrol stations in Romania and 269 petrol stations in the Republic of Moldova, Bulgaria and Serbia (as of end 2008). It is 51% owned by OMV A.G., an Austria-based integrated oil company with interests throughout central and eastern Europe. Petrom is also traded on the Bucharest Stock Exchange.
EBRD is considering providing up to EUR 200 million. Total project cost is approximately EUR 500 million.

Environmental impact

The Combined Cycle Gas Turbine Plant (CCGT) will be constructed on a brown field site at the refinery and will consist of two 291 MWe co-generation units (gas turbines and recovery boilers) and one steam 313 MWe turbine. A dedicated 30 km gas pipeline will be constructed to deliver gas to the Power Plant and a dedicated high voltage power line will be constructed to deliver power to the grid. Up to twenty percent of the power produced and up to 96 tons/hour steam will go to Petrom for internal use, with the remainder of the power going to the grid.
The Project was screened as Category A under the 2008 Environmental and Social Policy, requiring an Environmental and Social Assessment of the proposed power plant, and studies on the gas pipeline, overhead power lines, and on the services to be provided from the neighbouring Petrom refinery, public consultation, and action plans for each asset. These studies were carried out by independent consultants.
Environmental studies were done on soil, hydro-geology and underground water, water usage, air quality, biodiversity, landscape impacts, noise. Social issues reviewed included socio-economic impacts, cultural heritage, labour, occupational and public health and safety.
The most significant atmospheric emissions from the CCGT will be from the operational phase when natural gas will be combusted to drive the gas turbines and also generate heat/steam for the steam turbine, resulting in nitrous oxide (NOx) and sulphur oxide (SOx) emissions. The CCGT is located in close proximity to other significant NOx and SOx emitters in the form of the Refinery itself and neighbouring Dalkia CHP plant, and a cumulative assessment of air emissions will be undertaken following a decommissioning programme at the Refinery, which will remove some emissions sources.
The CCGT will be highly efficient, with total natural gas consumption of 1.2bcm/year. It will have state-of-the-art emissions reduction equipment, such as low NOx burners, and will fulfil the latest European environmental emissions requirements outlined in the Large Combustion Plant Directive. The sulphur content in the natural gas feedstock to be used by the CCGT is low and hence will not result in significant SOx emissions from the auxiliary steam boiler. In order to monitor NOx concentrations in CCGT flue gas, real-time air emissions monitoring equipment will be installed on the CCGT flue stacks. The CCGT will be designed and implemented in conformity with Best Available Techniques (BAT) applicable to the CCGT for ensuring environmental protection.
Limited contamination of soil was found on the site from the refinery operations, however within the permissible limits for industrial sites. Upgrades of the refinery’s wastewater treatment plant are necessary and included in action plans.

Natural gas pipeline

The national gas company Transgaz will construct, own and operate an 800mm diameter / 30 km gas pipeline dedicated to the CCPP, from an underground storage facility at Butimanu, Dambovita County. The route will traverse agricultural land and has been designed to avoid local settlements and minimise river crossings.
Under the EU EIA Directive and Romanian law, an EIA for this length of gas pipeline is not mandatory, and the Romanian environmental authorities will screen the project to determine what kindof studies are needed. See Public Consultation section below.

Overhead Line (OHL) connection

The OHL Connection between the CCGT and National Grid will involve installation of new pylons, overhead cables, and High Voltage (HV) switchgear and 220/400kV transformers (both state-of-the-art by Siemens). A short (3km) high voltage power line will be constructed from the CCGT to the Brazi Vest switching station. Construction, operation and decommissioning of the OHL Connection will be carried out by the Romanian national electricity transmission network operator, Transelectrica.
Electromagnetic radiation was reviewed, and the closest receptors are 750m distant. No significant environmental or social issues were identified, and an action plan has been agreed for construction impacts, such as dust control and traffic management. All of the above will be installed in accordance with Romanian norms which are comparable with EU standards.

Public consultation and information disclosure

Petrom has developed a Stakeholder Engagement Plan (SEP) which identifies workers, the PetroBrazi refinery, the villages near the refinery, and the villages near the route of the gas pipeline as stakeholders. Environmental and social assessments and action plans have been put in the public domain in locations near the project, in the EBRD offices in London and Bucharest, and posted on the client’s website ( in Romanian and English languages.
The Power Plant went through a Romanian EIA process in 2007, including public hearings at different stages. The Overhead Electrical Lines are not subject to EIA, but went through a public notification process. The Gas Pipeline designs are not yet ready for screening by the environmental authorities, who will determine if an EIA is needed. At a minimum (if no EIA is needed), the environmental and social report and action plan prepared for EBRD on the pipeline will be in the public domain. If an EIA is required, it will go through the full process including notification and public hearings. All action plans for the CCPP, OHL, and Refinery have been disclosed.

Action Plans and Reporting

Environmental and Social Action Plans (ESAPs) have been developed for each component of the Project - CCGT, gas pipeline, OHL Connection and linkages with the Refinery. These action plans include management of the mitigation measures agreed, as well as monitoring requirements. Petrom will report both to the EBRD and to the public on an annual basis on the implementation of the plans. Site visits will be undertaken during construction and periodically thereafter. An independent environmental and social audit will be required after commissioning.

Plinacro Gas Storage Project

The proposed project will be used for the acquisition of Podzemno skladiste plina d.o.o., the company that owns underground gas storage in Okoli. The company will be requested to undertake a capital expenditures programme over the life of the loan aimed at ensuring adequate maintenance and operations of the gas storage. The storage represents a strategic asset for Croatia since it will enable the State to control and regulate the gas supplies and consumption in the future as well as secure non-discriminative third party access to the storage to gas suppliers and gas traders. Total project cost is EUR 70 million.

Transition impact:

Through this Project, the Bank would promote improvements in the efficiency of the gas storage and supply services, including:
1)a clear commitment by the Company to an investment programme that will support the  rehabilitation and expansion of the storage facility
2)improvements in the regulatory framework with respect to the status quo ante, which would allow non-discriminatory access by an enlarged set of end-users to the facility and avoid future discriminatory cut-offs in case of gas shortages.

The client is PLINACRO d.o.o.

 a 100% state-owned Croatian natural gas transmission system operator. Plinacro Company is the Croatian gas transmission system operator. Along with successful performance of its basic activity - natural gas transmission through the Croatian gas transmission system, Plinacro is intensively constructing the infrastructure to enable long-term and stable natural gas supply. By the implementation of development plans of Plinacro Company, after 2011, the larger part of the Republic of Croatia will be covered by the gas transmission system.Plinacro designed and is still developing its transmission system so as to be easily connected with and integrated in the network of international gas pipelines, particularly the pipelines that provide supply diversification and natural gas transit for the neighbouring countries. This will lead to very high energy security of the Croatian market, and be a strategic step forward within the region, in nearly all segments of natural gas business activities - production, supply, transit, storage, trade, and strengthen the Croatian economy and its political position. Today Plinacro operates 2085 km of high pressure gas pipelines, 1659 km of which are 50-bar system and 426 km of 75-bar system, 19 entry measuring stations, 151 exit measuring-reduction stations with 245 measuring lines and a state-of-the-art National Dispatching Centre, i.e. communication system and centre of remote supervision and control of the gas transmission system. Plinacro controls its infrastructure through the National Dispatching Centre and four gas transmission regions - the Gas Transmission Region Eastern Croatia (with headquarters in Donji Miholjac), the Gas Transmission Region Central Croatia (with headquarters in Popovaca), the Gas Transmission Region Northern Croatia (with headquarters in Zabok), the Gas Transmission Region Western Croatia (with headquarters in Rijeka), and the Maintenance Department and Storage located in Ivanic-Grad. Currently Plinacro employs 266 people, almost half of them post-secondary graduates and university graduates. At the beginning of 2008, the total assets of Plinacro amount to HRK 2.54 billion.

Environmental impact

Use of proceeds is not associated with a major expansion and/or modernisation of the existing Okoli gas storage facility. Moreover, potential significant adverse environmental and social impacts are readily identified and addressed through mitigation measures. The Project has therefore been screened as Category B in accordance with the Bank’s Environmental and Social Policy (2008).
An integrated audit covering environmental, social and occupation, health and safety issues related to Plinarco and the Okoli gas storage facility will be conducted by an independent consultant. Results from this audit will be included in an Environmental and Social Action Plan that will need to be agreed with the Company and implemented over an agreed timeframe. In addition, a Stakeholder Engagement Plan will be prepared and released to the public domain.
EBRD considers the area of influence to include the Okoli project site and related auxiliary facilities; however, this will be further investigated as part of the Bank’s due diligence in the field.
The PSD will be updated with the results of investigations and main agreed actions as part of the Bank’s environmental and social due diligence process.

Rotor Wind Farm

The EBRD is considering financing the construction and development of a 135 MW onshore wind independent power project located in Osmaniye in Southern Turkey. The wind farm is being developed by Rotor Elektrik Uretim A.S., a company incorporated in Turkey and 100% owned by Zorlu Elektrik Uretim A.S (Zorlu Enerji). It is expected to be operational by the end of 2009 and will be Turkey’s largest wind farm to date.

Transition impact:

The Bank’s involvement in the project will promote further development of the power sector in Turkey as well as the following transition impact potential:
Demonstration effects of new products and processes - The project would be the first large scale wind project in Turkey developed on a project finance basis. In addition, the project has the potential to lead to important demonstration effects in terms of environmental best practice as well as the financial viability of large scale wind projects which could attract new developers and investors in the sector.
Improved regulatory framework - The regulatory and legislative framework for renewable energy in Turkey is still relatively new and untested. Through the Project, the Bank will support the regulatory framework, which has the potential to pave the way for additional renewable projects going forward.
Deepening of markets - The project is expected to sell power to the open market, deepening the extent of the nascent Turkish power market.
The client Rotor Elektrik Uretim A.S. is a company incorporated in Turkey and 100% owned by Zorlu Elektrik Uretim A.S. Zorlu Enerji is majority controlled by Zorlu Holding A.S., a large Turkish conglomerate with operations in energy, textiles, electronics and white goods.
The EBRD will provide up to ˆ45 mln to Rotor Elektrik Uretim A.S. for the development of the wind farm. Also expected to participate in the financing package is IFC, EIB and commercial banks.
Total project cost is EUR 211 million.

Environmental impact
Screening category and applicable performance requirements

Following an Initial Environmental Examination (IEE), the project has been screened B under the Bank’s Environmental and Social Policy 2008, requiring an Environmental and Social Due Diligence (ESDD). The project is at an advanced stage of construction and, therefore the Bank’s ability to leverage change to sitting, design and access road construction is limited. Nevertheless, the IEE and subsequent ESDD confirmed that the site is not located in a sensitive location and that both the construction and future operational impacts can be readily identified, assessed and mitigated.
The Bank has undertaken the ESDD jointly with the IFC who are also considering financing the project. The ESDD includes an Environmental Impact Assessment (EIA) prepared by an independent local consultancy and an environmental and social appraisal of the project by the Bank.

Key Environmental and Social Issues and due diligence results

Although wind farms have significant benefits in terms of generating carbon free electricity, they can be associated with environmental and social impacts due to the location, notably in terms of impact on flora and fauna as well as possible impact on land use.
Although the project is not located in an environmentally or socially sensitive location, it will have a considerable impact on the landscape, due to its extensive infrastructure (access roads) and the positioning of 54 large wind turbines on a mountain ridge. This issue was identified as part of the ESDD, and although the impact is limited and the developer has designed steps to reduce impacts as far as possible, it can not be eliminated.
The project did not require a full EIA under National legislation, however, an EIA has been developed by the Sponsor for the Lenders. This EIA has confirmed that the project will have limited impact on flora and fauna and that the site is located a considerable distance from bird migratory routes. Furthermore, the location will also have limited impact on land use and local livelihoods. The Sponsor is developing a social programme and will support local educational programmes. One of the main environmental impacts is associated with the development of the associated infrastructure such as the access roads to the site. To mitigate the potential impact of soil erosion, an environmental and social management and monitoring plan has been developed with the Sponsor and is included as part of the EIA.
The ESDD has confirmed that the project is structured to meet the Bank’s Performance Requirements (PRs).

Summary of Environmental and Social Action Plan

As a result of the ESDD, an Environmental and Social Management and Monitoring Plan (ESMMP) has been prepared in line with the Bank’s Performance Requirements (PRs) to address both the construction and operational phase of the project. This includes the development of a systematic approach to environmental and social management of the construction process to limit erosion as well as avifauna monitoring at the wind farm. The Company will implement an environmental, health and safety management system to manage the construction, operation and future decommissioning phase. A Stakeholder Engagement Programme (SEP) has been developed by the Company, which will include the publication of annual information on environmental and social matters on the Company’s web sites, as well as local information in local newspapers, as appropriate. A grievance mechanism will be maintained by the Company.

Implementation requirements
• The Company will implement the ESAP (as agreed with the Company) and the Environmental and Social Management and Monitoring Plan.
• The Company will be required to provide the with an annual environmental report to the Lenders, including updates on the bird monitoring undertaken, implementation of the agreed environmental and social action plan, and notification on any material accidents or incidents.
  The Company will conduct its business with due regard to National and EU environmental regulations and standards
• The Company will facilitate periodic monitoring visits by Bank staff or appointed representatives, when deemed necessary.