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Ukraine glassmaker slashes energy use

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Related links Ukraine homepage Agribusiness homepage Vetropack Gostomel [Project Summary Document]

Ultra-high temperatures are needed to make glass.

Gostomel Managing Director Andriy Girnyk.

The price of imported natural gas doubled in Ukraine this year, so the heat is on Ukrainian industry to become more energy efficient. Glass producer Vetropack Gostomel is at the vanguard of Ukrainian energy-intensive companies using EBRD finance to make each calorie count.

As volcanic-red blobs of molten glass drop at five-second intervals into one of Vetropack Gostomel’s bottle-forming machines, Managing Director Andriy Girnyk nods his head with pride. “We’re doing well, but there are always improvements to be made. We’ve arranged a new $59 million loan from the EBRD that will help us to increase production by 40 per cent while slashing energy costs by 33 per cent. The savings in natural gas and electricity will be equivalent to that consumed by a small town of, say, 26,000 people.”

Glassmaking is one of most energy-intensive industries there is. Gostomel’s production process, which yields more than half a billion glass bottles annually, requires an uninterrupted supply of molten glass from furnaces heated to a consistent 1400 degrees Celsius, day and night, for years on end. One single second of disrupted power means an hour of down-time to reinstate operations. Imagine the impact when Russia’s Gazprom turned off the gas flow to Ukraine in early January to emphasise its demand for a price hike.

Gostomel, a majority stake in which was purchased by Swiss-based Vetropack in February 2006, was better prepared than most Ukrainian energy-intensive companies for the energy price shock. Cheap energy via Russian pipelines, a lingering benefit dating from the Soviet era, has encouraged wastefulness in Ukraine which, compared with western Europe, uses more than three times as much energy to produce each unit of GDP.

Since 2002 Gostomel, a former state entity privatised through the sale of shares to workers in 1993, has used EBRD loans and donor support to cut the factory’s energy use while simultaneously boosting production. In this and other ways Gostomel exemplifies successful transition to the market economy. It is well regarded for its careful attention to production efficiency and quality as well as marketing and staff management.

“In communist days, all we worried about was production, production, production – meeting quotas,” remembers Mr Girnyk. “You could sell anything because everything was in short supply. Many factories did not worry about quality, although we did, particularly as we were already selling to a multinational, L’Oreal, even in those days. When Soviet days ended, buyers started demanding quality, especially the foreign companies who were more present in our market.

“After we attracted EBRD financing in 2002 (a loan of $12 million), we constructed the new factory and bought equipment from the west, replacing much of the old equipment. We started producing lighter bottles and lifted production to 95% of installed capacity versus 83% in the old days. We have far fewer rejects than before, which means less re-melting and less wasted energy.”

Once its new equipment is in place, Gostomel will double its annual production of molten glass, which will yield a 40 per cent increase in bottles produced, to about 750 million per year. It sells to the cream of the beverage industry, including Coca-Cola, Tuborg, Stella Artois, Carlsberg and the Russian breweries Baltika and Vena. They demand quality, and Gostomel delivers.

Among the many changes the company has gone through since it was privatised in 1993 was to cut the weight per bottle by more than 20 per cent. Besides requiring less energy and material in their manufacture, the bottles are lighter to transport, yet they can bear 50 per cent more pressure than older designs.

Consumers demand quality

“Ukrainian consumers are demanding higher-quality foods, especially western labels, and western food companies need high-quality glass for their high-pressure filling lines,” comments EBRD banker Paul Pehr who handles the Gostomel account. “Those top brands can’t afford to have glass shattering all the time. Gostomel fills their quality criteria.”

The bulk of the new EBRD loan will finance replacement of old, inefficient glass furnaces with new equipment, including one of the largest glass melting furnaces in central and eastern Europe. This will yield not just energy savings but also reduce production of carbon dioxide, a greenhouse gas blamed for global warming, by 20,000 tonnes annually. Gostomel expects to be among the first in Ukraine to use the Kyoto Protocol to sell such carbon ‘credits’ by reducing its contribution to global warming.

The firm has its eye on reducing its environmental ‘footprint’ in other ways, such as increasing its use of recycled glass by more than 50 per cent to 6,500 tons annually. The firm has already installed heat utilisers to capture hot air which exited the chimneys at 400 degrees; it now goes out at a lower temperature and heat saved is used to warm the plant and the adjacent village.

Sitting in the plain, bare office he has occupied as a manager since the company was privatised, Mr Girnyk says with a slow smile: “You would have to say that we in Gostomel have progressed a lot.”

By Kate Dunn, Senior Communications Adviser.
Contact: Agribusiness team

8 August 2006