GrCF2 W2 - ENA Investment Program

Location:

Armenia

Project number:

52868

Business sector:

Energy

Notice type:

Private

Approval date:

14 Jul 2021

Status:

Signed

PSD disclosed:

11 Jun 2021

Project Description

The Project is an extension to the USD 80 mm facility signed in 2017 (OpID 48957) for implementation of the Phase 1 of the 10-year (2016-27) investment programme of Electric Networks of Armenia ("ENA" or the "Borrower" or the "Company") aimed at modernization of the power distribution infrastructure in Armenia.  It will enable the Borrower to implement the 2021-22 capital investments of Phase 2 of the investment program (the "Project") targeting primarily, among other areas, the two largest cities of Armenia - Yerevan and Gyumri (the "Cities").

Project Objectives

The Project will help the Borrower to improve energy efficiency, reduce technical and commercial losses and hence GHG emissions, as well as improve the overall reliability of power supply in the country.  The Project will support ENA in its continuous efforts to provide affordable, reliable, sustainable, and modern energy to its customers.

The Project is an extension of the Bank's engagement in Armenia through the EBRD Green Cities programme.  ENA's investment programme addresses the priorities identified in the Cities' Green City Action Plans ("GCAP"), and has been developed through close consultation with both municipal governments with the GCAPs at the heart of the cities' considerations.

Transition Impact

ETI score: 70

The Project is part of Green Cities 2 ("GrCF2") and a follow-on investment to the Yerevan and Gyumri GCAPs.  The GrCF2 represents a strategic and multi-project approach seeking to help identify and address environmental challenges in selected large cities in our countries of operation.

The primary goal is to achieve significant environmental improvements and to promote the Green transition quality within the relevant cities.  In addition to the environmental objective, the GrCF2 also promotes sustainable cities through inclusive, resilient, well-governed and smart urban development.  Depending on which area can generate the strongest and most relevant transition impact, either Well-governed, Inclusive, Resilient or Competitive will be pursued and presented as the secondary transition quality for each sub-Project under the framework.  These transition objectives are supported by the development and implementation of a city-specific Green City Action Plan (GCAP) aiming to identify environmental challenges, facilitate better coordination and buy-in among stakeholders and help to prioritise and develop the best ways to address the environmental challenges through targeted investments, services and policy instruments.

The Project will primarily help to promote the Green transition quality by through reduction of GHG emissions via technical and commercial losses enhancement as well as demand side management benefits and assistance in removing barriers for smooth integration of renewables in the power system of Armenia in the long-term.  The Project will also support the Competitive objective through implementation of system upgrades and new automatic control and smart metering systems which will help to enhance the power system's reliability and flexibility with significant reduction in average interruption time - which are both disruptive and costly for businesses and other end-users in Gyumri and Yerevan.  Additionally, the Bank's financing will promote digital transition through massive introduction of smart meters in Armenia, which are the essential end-points of a smart grid in a digital economy, which is one of the pillars of the EBRD's Strategic Capital Framework.

Client Information

ELECTRIC NETWORKS OF ARMENIA CJSC

ENA is a closed joint stock company established under the laws of Armenia, which is involved in electricity transmission and distribution in the country.  ENA is fully-owned by Tashir Group, a diversified group of over 200 industrial and construction companies, which in turn is ultimately controlled by the Armenian-born entrepreneur Samvel Karapetyan and his family.

EBRD Finance Summary

USD 60,000,000.00

Total Project Cost

USD 148,400,000.00

Including up to USD 20,000,000 syndicated

Additionality

EBRD offers a long tenor structure suitable for the long-term investment program, where alternative commercial financing is limited.  The Project will also enhance the quality of electricity supply and reduce annual CO2e emissions by almost 13,000 tonnes within 2 years, driven by reduced energy losses in the system.  Additionally, the Project will help the client to move towards international best practice in terms of system reliability or flexibility with significant improvement in system performance.

Environmental and Social Summary

Categorised B (ESP 2019).  The ESDD for this project was undertaken by an independent consultant in line with COVID-19 approach through remote documentation review, interviews with ENA management and video site visits of chosen project locations.  The Bank is familiar with Company's operations and company's EHS capacity through its long standing relationship with the Company (previous transactions in 2009 and 2017).  The Company has been implementing a robust corporate ESAP since 2018 following Phase I investment, implementation of which has been monitored independently through 6 monthly Lenders Technical and E&S Adviser monitoring site visits (the last report dated October 2020).

As result of the ESAP implementation the company has strengthened its Integrated Management System (IMS) and is currently certified to ISO 9001, ISO14001, ISO45001 & ISO50001 (ISO 9001, 14001 & 45001 are company-wide accreditations whilst ISO 50001 covers only ENA's transmission lines).  However, there still remains few areas for further improvement.  Throughout monitoring of the Phase I investments and corporate E&S performance, it was noted that ENA's H&S performance was not satisfactory with delayed reporting of historical fatalities among Company employees, contractors and members of the public.  This is an area of concern and the Banks has been working actively with ENA on root cause analysis of the fatal incidents, review of existing procedures for isolation of electrical energy and a more comprehensive public awareness campaign.  This included Bank funded provision of a targeted IOSH Managing Safety Training for H&S and Technical Directors at ENA and planned provision of H&S culture training for Company's Senior Management to secure their buy in.

The Company has addressed key identified environmental risks related to management of hazardous waste through construction of dedicated hazardous waste storage facility (operational since early 2021) and formalisation of relevant waste passports and waste handling procedures, upgrade and replacement of oil storage facilities with those compliant with GIP, application of E&S screening process to all sub-projects from Investment Plan and introduction of contractor management procedures.  On the other hand, some other OESAP actions, among others those regarding testing for presence of PCB in transformer oils, need for further EHS training, further improvements to waste management practices remain outstanding.  The bank will further follow up with the Company on SF6 management as well as development of procedures to limit impact on birds from power lines.

Overall, despite the COVID-19 and numeral external challenges the Company has managed to progress with the ESAP, however implementation of the set policies and procedures across nationwide operations requires further personal and financial resources and effort.  The Company employs over 6,800 employees (88% male and 12% female) and is planning to reduce its labour force to circa 6,150 by 2028 (this is mostly related to the modernization of the ENA infrastructure and improved efficiency of operations).  The Company has a well-defined retrenchment policy and generous severance pay with opportunities for retraining and employments in other parts of Tashir Group (Sponsor).  There is an active Trade Union and Collective Bargaining Agreement has been revised in 2020.  The Company has implemented internal grievance mechanism, albeit some improvements have been recommended through ESDD and are reflected in the ESAP.  The Company is required to update their HR procedures in line with GBVH requirements.

The ESDD has confirmed that all Phase II investments will be undertaken on existing low voltage infrastructure, will not require any resettlement and the E&S risks are likely to be temporary and site specific.  The ESDD highlighted, however, that impacts of ENA operations on biodiversity require further improvements with strengthening of the screening process to identify any potential impacts on internationally protected areas and protected bird species and implementation of relevant mitigation measures in the design.

A revised SEP has been prepared and will be implemented and is linked to community electrical safety campaign. NTS for the project was prepared and will be disclosed.  A revised ESAP has been prepared and will be agreed with the Company prior to Board approval.  The ESAP is focused on further strengthening of EHS capacity (including at Board level) and processes, roll out of further environmental and H&S training, improvements to operational procedures, including those related to electrical insulation, contractor management and waste management and minimisation of biodiversity impacts.  The Company will need to step up their PCB testing regime in the light of insufficient capacity of national labs and to procure an independent H&S audit.  HR procedures and grievance mechanism will require to be updated to fully meet PR2 requirements.  The Bank and its B lender will continue to support the Company with improvements in regards to H&S capacity and practices aligned with GIP.  The Banks and its co-lenders will continue to monitor the project through independent E&S Advisor.

Technical Cooperation and Grant Financing

none

Company Contact Information

Armen Arshakyan
arshakyan_AS@ena.am
+37477774000
+37477774000
127, Armenakyan street, Yerevan, Armenia, 0047

PSD last updated

21 Jun 2021

Understanding Transition

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

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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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