Provision of a senior loan of up to EUR 5 million to Gradska Toplana d.o.o. Karlovac (the "Client" or the "Company") consisting of 2 tranches: A) up to EUR 3 million to be committed at signing (the "Tranche A"), and B) an uncommitted tranche of up to EUR 2 million (the "Tranche B").
The Project will serve as a 'trigger' investment under the Green Cities 2 i Window II Extension 2 framework, which will help the City of Karlovac identify and address priority environmental challenges through development and implementation of a city-specific Green City Action Plan ("GCAP").
Tranche A proceeds will support a comprehensive rehabilitation of the City's DH network through the replacement of obsolete hot water pipes and shafts and implementation of SCADA to help enhance the efficiency of the heat distribution network and halve distribution network losses. In addition, the project is expected to result in an annual reduction in greenhouse gas emissions ("GHG") at the level of 3,105 tonnes of CO2 equivalent and 1.10 tons of NOx.
The Tranche B investment will support the incorporation of energy from the renewable sources, which will allow for further energy savings as well as additional substantial CO2 emissions savings.
ETI score: 70
- Green (primary): The Project will contribute towards (i) a decrease in losses from the distribution network, (ii) realisation of significant energy savings as a result of lower heat losses, and (iii) notable reduction in GHG emissions and air pollution from the City's district heating system. In addition, the Project will covenant and support the development of a comprehensive GCAP that will help the City to measure, benchmark and prioritise environmental challenges and identify appropriate mitigation actions, reforms and priority green infrastructure investments.
- Well-governed (secondary): the Project will promote good governance through the introduction of the Financial and Operational Performance Improvement Programme ("FOPIP"), which will support the Company in the improvement of financial and operational performance, commercialisation of operations, quality of management and institutional capacity building, including in the area of asset management. Additionally, the well-governed objective will be supported through the adoption of a Public Service Contract ("PSA") that will help ensure a fully transparent relationship between the Company and the City, with a well-defined required level of service and adequate tariffs.
GRADSKA TOPLANA DOO
Gradska Toplana d.o.o. Karlovac is a limited liability utility company incorporated in Karlovac, Croatia, which provides district heating services in the City of Karlovac.
EBRD Finance Summary
Total Project Cost
There are two types of additionality for the project: financial and non-financial. Financial additionality is related to the project's financing structure, with the EBRD offering a tenor and grace period beyond what is currently available in the market, which is necessary to structure the project. Non-financial additionality sources include: (i) risk mitigation, with the EBRD helping the client to mitigate environmental, social and governance risks and take climate action through development of GCAP, as well as (iii) knowledge, innovation, and capacity building, with the EBRD supporting the strengthening of the client's capacity through FOPIP TC.
Environmental and Social Summary
Categorised B (2019 ESP). The project will result in environmental and social benefits by reducing heat losses and improving overall energy efficiency and reliability of the district heating system in Karlovac, and in the future switching over to accept heat from renewable sources. The project does not involve any investment into generating capacities and focuses mainly on the distribution side. Any adverse impacts will be site-specific and addressed through mitigation measures.
The project is consistent with the GET approach. After the implementation of Phase I, distribution losses in the network will reduce by 50% and as the result lead to significant energy savings, decreasing CO2 emissions by almost 20% (3,105 t/annum) and achieving water savings of 100,781 m3/annum. Reduction of concentrations of sulphur and nitrogen oxides in the air during the winter period in the City will also alleviate the negative effects on human health and enhance quality of life. The project will also support the City in its climate resilience efforts to withstand any potential flooding impacts as the pipes renewal will protect from leakages and bursts and any associated contamination risks.
Environmental and social (E&S) due diligence has been undertaken by an independent consultant and included a corporate audit of the Company, review of risks associated with their existing operations and associated facilities, and an E&S assessment of the investment components under Phase I. ESDD determined that no impacts on sensitive nature protected areas or cultural heritage sites would occur, no expropriation or new land acquisition is required and no need for any resettlement or displacement. No significant affordability challenges have been identified during due diligence, and vulnerable households are supported through the state subsidy. Potential impacts during the construction phase will include increased dust and noise levels and disruptions in the district heating services, and these will be mitigated by adopting good construction practice.
ESDD concluded that the DH Company is required to improve its E&S Management System (ESMS) and capacity in line with good international practice to implement the project in line with EBRD's PRs. A Stakeholder Engagement Plan, including a grievance mechanism, and an Environmental and Social Action Plan (ESAP) have been developed for the project to address any issues identified during ESDD to ensure that the project is structured to meet the Bank's PRs, and these will need to be implemented during the Project. ESAP measures include development and implementation of the project-specific Construction and Operation E&S Management Plans (CESMP and OESMP) covering all aspects including worker and community safety and waste management, observing environmental permit requirements, developing and adopting a chance find procedure for construction works, developing a traffic management plan, updating HR procedures including worker grievance mechanism.
Uncommitted Phase II investment includes preparation of the heating system to accept energy from the renewable sources and will be subject to an additional ESDD at a later stage, and in case of the geothermal energy use will require to undergo the EIA procedure in line with the national and EU requirements.
Technical Cooperation and Grant Financing
- TC1: Environmental and Social due diligence including preparation of all environmental and social aspects of project implementation, and preparation of Environmental and Social Action Plan, which includes key actions the Company should undertake during the implementation of the Project to ensure compliance with the environmental and social findings.
- TC2: Financial and Operational Performance Improvement Programme, which will provide assistance to the Company to improve their financial and operational activities for greater efficiency, including business planning, modernisation of HR policies, strengthening inter-departmental communication system and strategic capacity building.
- TC3: Green City Action Plan. The TC will support the development and implementation of a GCAP for the City of Karlovac. The GCAP will also cover digital, inclusion and gender considerations.
Company Contact Information
+385 47 411 166 (109)
Tina Ujevica 7, 47000 Karlovac, Croatia
PSD last updated
24 Mar 2022
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Independent Project Accountability Mechanism (IPAM)
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