EBRD 10-year loan for main city on Sakhalin island

By Richard Wallis

A 10-year EBRD loan will fund a major investment – the first such external one in 20 years -- in the district heating system of the main city on Sakhalin, an island in the Russian Far East experiencing a major boom due to the discovery of oil and gas off its coast.

The loan was signed in Moscow today by the EBRD’s First Vice President, Phil Bennett.

The Bank’s 450 million rouble loan (equivalent to EUR 11 million) is earmarked for the modernisation of what has become an outdated and inefficient district heating infrastructure in Yuzhno-Sakhalinsk, a city of 193,000 at the island’s southern tip.

The project will cut the current high rate of heat losses caused by the poor state of the pipes, reduce the current very high energy consumption and finance the installation of heating meters that will encourage residential consumers to save energy.

Major economies in the consumption of gas, electricity, heat input and chemically treated water are expected by 2016 as a result of these investments.

The EBRD has to date invested nearly EUR 1 billion in municipal and environmental infrastructure projects in Russia.

It is the limited financing available to smaller Russian cities that oblige them to continue operating outdated and inefficient municipal infrastructure.

This particularly applies to the district heating sector which is not only inefficient but which also consumes far more energy than its counterparts in other countries.

Sergey Dmitriev, Chairman of the City Assembly of Yuzhno-Sakhalinsk, welcomed the long-term financing provided by the EBRD, saying it would allow municipal companies to modernise the infrastructure needed for heat distribution in the city.

“This will increase the reliability and quality of the heating and how water supply provided to consumers while at the same time keeping the cost of these vital services at levels the population can afford,“ Mr. Nadsadin said.

The borrower is Open Joint Stock Company Sakhalinskaya Kommunalnaya Kompaniya (SKK), a district heating, water and wastewater utility. SKK is majority owned by the city of Yuzhno-Sakhalinsk with the remaining stake held by a regional power company ultimately controlled by Russia’s state-owned Rushydro.

For his part, Vladimir Zaitsev, the Director-General of SKK, said the company highly valued the opportunity of long-term cooperation with the EBRD, as well as the support provided under the Bank’s Technical Cooperation programme.