EBRD invests extra equity in LAFARGE’s Russian operations

By Richard Wallis

The EBRD is increasing its equity investment in the Russian operations of Lafarge SA, the world’s leading cement-maker, to fund a major expansion and plant modernisation programme in the regions of Russia aimed at taking advantage of a future market recovery.

The Bank has invested an additional €120 million in Lafarge Vostok SAS, a holding of France’s Lafarge S.A group (EURONEXT symbol NV:LGNV). Lafarge Vostok SAS owns 100 per cent of Lafarge Cement Russia. In 2006, the EBRD made a first equity investment of €70 million.

This capital increase has been made under an existing Multiple Project Framework agreement between the EBRD and Lafarge which covers the countries of Central Europe and the CIS. Previous projects under this framework have been implemented in Romania, Poland, Ukraine and Slovenia, as well as in Russia.

Despite having been badly hurt by the crisis, the Russian cement market has strong growth prospects in the long term, fuelled by significant construction needs in the housing, commercial real estate and infrastructure sectors.

The first project to whose development this funding will contribute will be a state-of-the-art cement plant at Ferzikovo in Kaluga region, which will have a production capacity of two million tons a year.

This greenfield project will represent a breakthrough in Russia in terms of energy efficiency, safety performance and minimised environmental impact. The carbon footprint per ton of cement produced will as a result be cut by 31 per cent and energy consumption will be halved from current levels. Lafarge also plans to make use of renewable energy sources at this plant.

Lafarge and EBRD will subsequently work on the next steps in the investment programme, namely in the Rostov and Krasnodar regions, as well as on further enhancement of existing plants in Voskresensk, 120 km southeast of Moscow, and Korkino, 40 km south of Chelyabinsk in the Urals industrial heartland of Russia.

A programme aimed at achieving an annual reduction in greenhouse gas emissions at the Voskresensk and Kokrino plants equivalent to up to 200,000 tons of CO2, as measured in terms of constant cement output (2008), has already been launched.

Lafarge Cement Russia is currently commissioning new filters at both plants to cut emissions so that they match EU standards.

Other financial details of this transaction were not disclosed.

BACKGROUND ON LAFARGE IN RUSSIA
Lafarge Cement Russia currently owns and operates two plants in Russia, Voskresensk in
the Moscow Region and Korkino in the Chelyabinsk region. It has also acquired limestone licenses at Federal auctions in 2007 and 2008 in the Kaluga, Rostov and Krasnodar regions. Cumulatively, Lafarge Cement Russia is the largest investor in Federal reserves.
The Cement plant in Voskresensk is one of the largest enterprises in the Moscow region with an annual production volume in 2008 of more than 1.8 million tons. The plant was acquired by Lafarge in 1996.
The Cement plant in Korkino was acquired by Lafarge in 2003 and, since then, cement production doubled. Korkino is the biggest cement producer in the Chelyabinsk region with an annual production volume in 2008 of 1.5 million tons.