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EBRD loan helps refiner protect Danube from oil spills

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Related links Hungary homepage Environment homepage MOL Environmental Loan [Project Summary Document] EUR150 million loan to MOL to cut emissions, improve environment [Press Release]

MOL's Duna refinery

An existing MOL de-sulphurisation plant

Protecting the Danube River from oil spills and other pollution, and reducing sulphur content in motor fuels are just two of the environmental benefits of a €150 million EBRD loan to central Europe’s fastest-growing petroleum refiner, MOL of Hungary.

The loan funds replacement of an aging pipeline carrying Russian oil across the Danube to MOL’s biggest refinery, located on the west side of the river at Szazhalombatta, 30km south of the Hungarian capital of Budapest.

“The pipeline, built about 40 years ago, was getting just too old,” explains Denes Bulkai, EBRD environmental advisor to the banking team that arranged the loan. “MOL was committed to replacing the pipeline to protect the Danube which runs downstream from Hungary through Serbia, Romania and Bulgaria on its way to the Black Sea.”

Cut sulphur

The loan is also funding improvements at the Danube refinery to reduce sulphur content in automotive fuels so they may continue to be sold in the European Union. As of 2005 EU regulations will set a sulphur limit of 50ppm for petrol – but MOL will surpass that and achieve the US level of 10ppm.

“The EU will likely move to the US standard some day anyway so MOL might as well make its refinery investment in anticipation of that,” says banker Olwyn Buldhoo. Sulphur dioxide emissions cause acid rain which harms vegetation, from crops to forests; damages buildings; and acidifies surface water.

The environmental improvements are part of MOL’s goal of becoming central Europe’s leading petroleum refiner, and a major player in entire Europe as well.

“MOL, which was privatised in the mid-1990s, is already the biggest company in Hungary,” said Mr Buldhoo. “They refine 12 million tonnes of crude per year. Building on their dominant position in central Europe, they’re buying up interests in Croatia, Slovak Republic, Romania and Serbia. That’s quite an accomplishment for a company in a country that no longer has significant hydrocarbon resources of its own.” The EBRD loan agreement promotes the adoption of EU environmental standards by MOL subsidiaries located outside the EU.

Cleaning up soil

The EBRD environmental loan has already funded MOL’s clean-up of contaminated soil at the Danube refinery. The company had been required to post a $40 million bond with the government to cover that environmental liability; those funds have now been released.

A separate loan of €13.4 million is expanding and upgrading MOL’s solid waste and wastewater treatment facilities at Szazhalombatta, reducing waste flowing into the Danube and emissions from the refinery’s waste incinerators. This is a ‘build-design-operate’ (BOT) project: the loan was made to Earth Tech Engineering Kft; when the wastewater project is done its ownership will transfer to MOL.

“Not only does this improve management of solid waste and waste water, the BOT nature of it also supports development of a market for outsourcing environmental services in the industrial sector,” says EBRD banker Arthur Schankler.

Changing needs

The EBRD first became involved with MOL in 1994 when the Bank provided a US$55 million debt facility to turn the depleted Zsana natural gas field in south-eastern Hungary into an underground natural gas storage facility.

“In the mid-nineties the EBRD supported MOL to gain access to international capital markets,” said Michel-Marc Delcommune, MOL’s chief financial officer. “Today MOL is big enough that it has ready access to capital markets; what it gains from the EBRD is financing for those aspects of our work that may be less attractive to commercial lenders – for example, upgrading environmental infrastructure that requires longer-term maturities.”

The EBRD’s €150 million loan has a seven-year maturity compared with five years provided by commercial lenders who, in parallel to the EBRD financing, are lending MOL €600 million for general corporate purposes.

“In line with the world’s leading corporations, MOL increasingly realises and assumes its responsibilities to harmonise its economic, environmental and social performance,” said Mr Delcommune. “Part of the EBRD’s value-added to MOL is its experience in lending for environmental upgrades. By financing MOL to not only meet but to surpass EU environmental standards, the EBRD is strengthening a regional player in a sector typically dominated by global companies.”

Contact: Kate Dunn

18 June 2004