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Screening category and justification
Screened B/1, requiring an Environmental Audit of the existing steel plant and iron ore mines as well as an Environmental Analysis of the proposed investment programme. The project involves provision of finance for an ongoing modernization programme at the existing steel plant and iron ore mines. The Bank’s financing will not be used for major expansion of the plant. The planned investment programme will significantly improve the current environmental and safety performance of the steel plant and mine operations and new investments will be structured to allow long term attainment of EU environmental standards. The Bank as part of its due diligence has undertaken an Environmental Audit and Environmental Analysis by independent international consultant. Based on the findings of the environmental due diligence an Environmental Social Action Plan (ESAP) has been developed and agreed with Borrower. This among others, reflects the required environmental investments included in the Share Purchase Agreement agreed with the Government of Ukraine.
Due diligence undertaken and outcomes
An environmental due diligence was undertaken of the project by an international environmental consultant. This consisted of an Environmental Audit of the existing steel, coke and mining operations sites as well as an Environmental Analysis of the planned investments programme.
The environmental due diligence confirmed that this is an old facility, with little if any investment in environmental abatement equipment in the past 20 years due to economic stagnation. This has resulted in the facility being run down and the abatement equipment installed at the plant not fully functional or in poor state of repair. The result is a significant environmental impact with dust emission and air quality being a major problem. The planned modernization being undertaken is aimed at improving the environmental situation considerably and the agreed ESAP has included specific investment with clear milestones set for attaining specific standards.
The implementation the ESAP will allow the plant to attain a level of environmental performance comparable to many plants in new EU Member States. The project, as structured, will ensure that all new investments and new facilities being constructed will be structured to meet EU IPPC requirements. Therefore any new steel converter shop, continuous casters, etc. will be designed to meet EU Best Available Techniques (BAT) requirements. For existing installations, the investment process will aim at reducing the most significant environmental impacts. In some areas due to technological constraints, IPPC compliance can not be fully achieved in the short to medium term. In line with the Bank’s Environmental Policy, in these situations the environmental performance requirements have been structured to meet EU standards in a reasonable timeframe, given the current condition of the plant.
Implementation requirements
The Company has agreed to implement an Environmental and Social Action Plan (ESAP) over the next six years. These range from improving on site environmental, health and safety management to specific environmental and safety requirements such as replacing the Open Hearth Furnace (OHF) with BAT compliant technology as well as upgrading the main sinter plants. The ESAP can be summarized as follows:
- Implement an Environmental, Health and Safety (EHS) management system. This is to be in line with ISO requirements and externally certified.
- Undertake an independent IPPC BAT ("Best Available Techniques") assessment of planned investment programme to ensure it is structured to meet EU and Ukrainian environmental standards.
- Develop new "PDV" air study as required by Ukrainian legislation.
- Develop and implement a Resettlement Action Plan (RAP) in accordance to EBRD Environmental Policy.
- Install continuous ambient monitoring stations within the city.
- Installation of Continuous Emission Monitoring Systems (CEMS) on all major point sources.
- Inclusion of primary and secondary environmental abatement as part of the ongoing Blast Furnace (BF) 8 capital reconstruction works. Installation of additional environmental abatement equipment to reduce emissions at BF No 5, 6, 7.
- Further modernize the recently modernized BF 9 during next planned capital upgrade to enable attainment of EU IPPC BAT requirements.
- Reduce emission from existing convertors.
- Introduction of the advanced technology for fine treatment of waste water in the reverse cycle of water supply at Section Rolling Shop No. 1 and Blooming Mill Shop No. 1.
- Technical reconstruction of coke-oven batteries Number 3-4 with introduction of environmental protection measures.
- Reconstruction of gas cleaning plant to clean coke oven gas from H2S.
- Develop a hazardous waste management policy.
These are only some of the main points of the EAP, which in total includes over 40 specified tasks to be undertaken over the next six years. The EAP includes specific emission targets form various operations by specified dates. The Company has also been required that all new developments, including any significant mine extension or construction of any new tailing ponds is subject to an Environmental Impact Assessments (EIA), inclusive of public disclosure and consultation.
Furthermore, the Company is also subject to a set number of requirements as agreed with the Ukrainian authorities in the Share Purchase Agreement (SPA). This has been subject to separate review by the relevant Ukrainian authorities.
The monitoring and implementation can be summarised as follows:
- MSKR is required to provide the Bank with an annual environmental report, including updates on the ESAP, and notification on any material accidents or incidents.
- The new investments at the plant and mine will need to meet national standards and be structured to meet EU environmental standards. Any significant new developments, including any significant mine extension or construction of any new tailing ponds are subject to an Environmental Impact Assessments (EIA) in line with the Bank’s Environmental Policy, inclusive of public disclosure and consultation.
- The Company and its production facilities will conduct its business with due regard to national and EU environmental regulations and standards.
- The Company will arrange for annual monitoring visits by Bank staff or appointed representatives and undertake a Best Available Techniques assessment of the plant operations.
In line with the agreements the first monitoring was undertaken within 6 months of the loan agreement, and confirmed that the Company is implementing the agreed ESAP. A further monitoring visit was undertaken in 2007 and a more detailed monitoring visit is planned for second half of 2008.
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