GrCF2 W2 E2 - Karlovac District Heating Project

Location:

Croatia

Project number:

52899

Business sector:

Municipal and environmental infrastructure

Notice type:

State

Environmental category:

B

Approval date:

09 Jun 2022

Status:

Signed

PSD disclosed:

24 Mar 2022

Project Description

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").

Project Objectives

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.

Transition Impact

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.

Client Information

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

EUR 5,000,000.00

Total Project Cost

EUR 23,470,000.00

Additionality

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

Post-signing:

  • 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.

Post-signing:

  • 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

Zdravko Eremic
zdravko.eremic@gradska-toplana.hr
+385 47 411 166 (109)
www.gradska-toplana.hr
Tina Ujevica 7, 47000 Karlovac, Croatia

Implementation summary


PSD last updated

24 Mar 2022

Understanding Transition

Further information regarding the EBRD’s approach to measuring transition impact is available here.

Business opportunities

For business opportunities or procurement, contact the client company.

For business opportunities with EBRD (not related to procurement) contact:

Tel: +44 20 7338 7168
Email: projectenquiries@ebrd.com

For state-sector projects, visit EBRD Procurement:

Tel: +44 20 7338 6794
Email: procurement@ebrd.com

General enquiries

Specific enquiries can be made using the EBRD Enquiries form.

Environmental and Social Policy (ESP)

The ESP and the associated Performance Requirements (PRs) set out the ways in which the EBRD implements its commitment to promoting “environmentally sound and sustainable development”.  The ESP and the PRs include specific provisions for clients to comply with the applicable requirements of national laws on public information and consultation as well as to establish a grievance mechanism to receive and facilitate resolution of stakeholders’ concerns and grievances, in particular, about environmental and social performance of the client and the project. Proportionate to the nature and scale of a project’s environmental and social risks and impacts, the EBRD additionally requires its clients to disclose information, as appropriate, about the risks and impacts arising from projects or to undertake meaningful consultation with stakeholders and consider and respond to their feedback.

More information on the EBRD’s practices in this regard is set out in the ESP.

Integrity and Compliance

The EBRD's Office of the Chief Compliance Officer (OCCO) promotes good governance and ensures that the highest standards of integrity are applied to all activities of the Bank in accordance with international best practice. Integrity due diligence is conducted on all Bank clients to ensure that projects do not present unacceptable integrity or reputational risks to the Bank. The Bank believes that identifying and resolving issues at the project assessment approval stages is the most effective means of ensuring the integrity of Bank transactions. OCCO plays a key role in these protective efforts, and also helps to monitor integrity risks in projects post-investment.

OCCO is also responsible for investigating allegations of fraud, corruption and misconduct in EBRD-financed projects. Anyone, both within or outside the Bank, who suspects fraud or corruption should submit a written report to the Chief Compliance Officer by email to compliance@ebrd.com. All matters reported will be handled by OCCO for follow-up. All reports, including anonymous ones, will be reviewed. Reports can be made in any language of the Bank or of the Bank's countries of operation. The information provided must be made in good faith.

Access to Information Policy (AIP)

The AIP sets out how the EBRD discloses information and consults with its stakeholders so as to promote better awareness and understanding of its strategies, policies and operations following its entry into force on 1 January 2020. Please visit the Access to Information Policy page to find out what information is available from the EBRD website.

Specific requests for information can be made using the EBRD Enquiries form.

Independent Project Accountability Mechanism (IPAM)

If efforts to address environmental, social or public disclosure concerns with the Client or the Bank are unsuccessful (e.g. through the Client’s Project-level grievance mechanism or through direct engagement with Bank management), individuals and organisations may seek to address their concerns through the EBRD’s Independent Project Accountability Mechanism (IPAM).

IPAM independently reviews Project issues that are believed to have caused (or to be likely to cause) harm. The purpose of the Mechanism is: to support dialogue between Project stakeholders to resolve environmental, social and public disclosure issues; to determine whether the Bank has complied with its Environmental and Social Policy or Project-specific provisions of its Access to Information Policy; and where applicable, to address any existing non-compliance with these policies, while preventing future non-compliance by the Bank.

Please visit the Independent Project Accountability Mechanism webpage to find out more about IPAM and its mandate; how to submit a Request for review; or contact IPAM  via email ipam@ebrd.com to get guidance and more information on IPAM and how to submit a request.

 

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