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|Business sector:||Manufacturing and Services|
|Target Board date:||10 July 2012|
|PSD disclosed:||25 May 2012|
The EBRD is considering providing a loan totalling up to EUR 40 million to Kronospan FLLC, Belarus to finance construction of an MDF and laminate flooring plant at Smorgon in the Grodno region of Belarus with an annual MDF production capacity of up to 224,000 m3.; part of the MDF output will be used for further production of up to 5 million m2 p.a. of melamine faced MDF and up to 5 million m2 p.a. of laminate flooring.
Demonstration effect – large foreign direct investment in Belarus
The MDF project will complement Kronospan’s on-going particleboard investment in Belarus. Kronospan, an international market leader in wood processing, is increasing their investment in the local production facility, which will be setting new industry standards in terms of technology, knowledge and skills. As a result of the Project being implemented the market for wood-based panels will be further developed and will promote further investments in the wood processing industry in Belarus.
Impact on suppliers and customers: Kronospan will construct the first plant in the Republic of Belarus to produce a varied range of MDF products, For domestic customers it will be a reliable source of supply. The location in Smorgon will make it possible to have a strong export position, which will give opportunities to supply a wide customer base. The Project will increase the role of private sector players in the wood processing industry. It will encourage a transition towards the market based behaviour of both suppliers and clients (incl. furniture manufacturing and construction companies) in the country. Specifically, Kronospan will continue to promote sustainable forest management by ensuring that the increased volume of wood supply will be purchased from Forest Stewardship Council forest management certified sources.
Setting up high environmental standards
Kronospan is an international market leader, who will introduce leading environmental standards to the wood processing sector in Belarus. Throughout the prior relationship with the EBRD, Kronospan has demonstrated a sound approach to managing environmental issues associated with its production and products. Kronospan introduces modern technology with high standards of energy and resource efficiency and environmental performance based on the use of Best Available Techniques.
Kronospan FLLC is a fully-owned Belarusian subsidiary of Kronospan Holdings East Limited, Cyprus.
Kronospan is the global leader in the wood-based panel sector. It manufactures wood-based panel products at 29 manufacturing sites in 25 countries, including Poland, Czech Republic, Latvia, Slovakia, Bulgaria, Romania, Hungary, Croatia, Serbia, Austria, UK, USA, China, Germany, Russia and the Ukraine. It currently employs over 11,000 people and has revenues of around EUR 3 billion per year.
A senior loan of up to EUR 40 million. The EBRD loan will be complemented by Kronospan’s own funding.
EUR 102 million.
Categorised B. The construction and operation of MDF plant of 224,000 m3 annual production capacity on an existing industrial site is associated with a limited number of environmental and social impacts that are site-specific and readily identified and mitigated through introduction of modern production technology and appropriate management and mitigation measures. The project site is located adjacent to the existing Particleboard project and within a former industrial site of the large tractor plant in the industrial zone 5km from Smorgon town. The distance to the nearest residential area is about 1.5 km; the nearest nature protection area of regional importance is about 3km away. The particleboard and MDF production are not expected to have an adverse cumulative environmental or social impact on the surrounding communities and/or environment.
The environmental and social due diligence undertaken to date has shown that the Project has a potential to meet Belarusian environmental, health and safety requirements and with application of necessary mitigation measures will be able to meet the Bank’s PRs. The detailed project design of the plant will be prepared in due course, and together with production technology it will be similar to Kronospan’s existing MDF plants in Poland and Russia. The Company is committed to structure the project in line with existing sector Best Available Techniques (BAT), including the following:
air emissions controls (bag filters and cyclones from dryers, screening and other processes to minimise dust and VOC emissions, wet scrubbers at presses to reduce formaldehyde and dust emissions, dust abatement by wet spraying in wood yards),
closed loop water system (70% of water consumed in production processes will be recycled after waste water treatment),
adequate systems for waste water treatment from suspended solids, ammonia, formaldehyde and other pollutants,
recovery of wood waste to be used as fuel in a biomass boiler (bark, dust, deficient chips) to reduce amount of fossil fuel based energy production to cover high heat and electricity demand.
In terms of product safety, Kronospan will ensure compliance for both particleboard and MDF products with international standard E1 for formaldehyde content in the final products ensuring that the furniture made from them can be safely used without causing elevated concentrations of formaldehyde in indoor air.
The industrial complex of particleboard and MDF plants will consume a significant amount of wood as raw material, and the main potential indirect environmental and social impacts are associated with the wood supply. In total the wood raw material consumption is estimated to be up to 1.6 million m3 per year, of which up to 1 million m3 for the particleboard and 0.6 million m3 for the MDF production. A substantial part of that will consist of low grade round wood. The Company will also seek to use saw dust and sawmill residues available from local wood processing plants within a transportation distance of up to 200 km. Most of the wood will be provided on the basis of an investment agreement with the Government and supplied through the Belarusian Commodity Exchange. Kronospan also plans to develop its own wood harvesting operations in the future based on direct contracts with state forestry enterprise. To mitigate the potential adverse impact of the wood procurement and to ensure the wood supplied is of legal and sustainable origin, the Company is committed to only purchase wood from FSC or PEFC certified sources, when available. In previous projects of EBRD with Kronospan the Company has implemented sustainable wood procurement procedures required by the Bank and obtained FSC Chain-of-Custody and Controlled Wood certifications. The same approach will be introduced for the MDF plant in Belarus, and in the case of its own wood harvesting operations the Company will adhere to sustainable forestry management practices and seek to acquire FSC Sustainable Forest Management certification for the forests under its direct control.
As particleboard project demonstrated, the construction stage can cause some issues for the local community related to the construction traffic nuisances and housing availability for construction workers, which at peak time reached to about 600 people. Kronospan is aware of the potential risks and has been working with local authorities to resolve the issue of workers accommodation and will be planning accordingly for the MDF plant. Additionally, the social impact of the future industrial complex is assessed as positive by creating significant number of jobs (directly at two plants) and providing wider benefits to local economy through multiplier effect and taxes. Kronospan has proved to follow good information disclosure and stakeholder engagement practices in Belarus.
To ensure the implementation of adequate mitigation measures to address above issues, an existing Environmental and Social Action Plan (ESAP) for particleboard project will be updated and will include provisions specific to MDF as well as others to address cumulative impacts of two plants. The Company will provide the Bank with an annual environmental and social report (AESR), including updates on the ESAP implementation. The Bank will evaluate the Project’s environmental and social performance in accordance with the ESAP and Bank’s PRs including compliance with Belarusian and EU environmental standards based on the use of BAT through reviewing the Client reporting and undertaking periodic monitoring visits.
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Last updated 12 June 2012